Unemployment Falls to 4.1% as Rate Hike Odds Rise Ahead of RBA Meeting

Australia's unemployment rate has fallen to 4.1 per cent, strengthening the case for tighter monetary policy ahead of the Reserve Bank's next interest rate decision.

New seasonally adjusted data from the Australian Bureau of Statistics shows the jobless rate dropped from 4.3 per cent in November to 4.1 per cent in December, defying expectations of a softer labour market.

The stronger-than-forecast result comes less than two weeks before the Reserve Bank of Australia board meets on February 3 to decide the future direction of interest rates.

Employment increased by 65,000 people in December, driven largely by full-time roles, which rose by 55,000, while part-time employment grew by a further 10,000. The participation rate climbed to 66.7 per cent, indicating more Australians are either working or actively seeking employment.

The ABS said the fall in unemployment was partly driven by younger Australians entering the workforce. Head of labour statistics Sean Crick noted increased employment among people aged 15 to 24 was a key factor in December's result.

Male employment accounted for the bulk of the gains, rising by 49,000, while female employment increased by 17,000.

While most economists still expect interest rates to remain on hold in the near term, the robust labour market has increased pressure on the central bank. Financial markets are now pricing in a higher probability of a rate rise at the next meeting, with Reuters data showing the odds jumped to 53.8 per cent following the release of the employment figures.

Looking further ahead, futures markets are pricing in a potential rate rise to 4 per cent by November, with only a small number of economists forecasting rate cuts this year.