A robust labour market in June pushed the jobless rate to an 18-month low, putting pressure on the RBA to resume raising interest rates.

The better-than-expected employment report propelled the Australian dollar up above US87 cents as investors factored in the risk that the Reserve Bank of Australia could raise the official cash rate earlier than previously expected.

The unemployment rate of 5.1 per cent – the lowest level since January 2009 – was steady on a revised May figure, but was down on the original 5.2 per cent calculation and lower than economists’ forecasts of 5.2 per cent.

Employers added 45,700 jobs in June, easily beating estimates for growth of 15,000.

“It underscores not only the strength of the labour market but also the increasing tightness of the labour market,” said RBC Capital Markets economist Su-Lin Ong.

“It’s a factor when you think about the inflation outlook.”

The June-quarter inflation report, to be released later this month, could be the tipping point for the RBA if it showed stubbornly high underlying inflation.

JPMorgan economist Stephen Walters said: “An unemployment rate close to 5 per cent is basically full employment.

“We’re running out of people and that means wage pressures and pressure on the RBA for more tightening.”

The central bank held rates steady at 4.5 per cent for a second consecutive month earlier this week, after six rate increases since October last year.

A rate increase at the RBA’s August meeting was considered unlikely given the softening in retail sales, weak building approvals and concerns about European debt as well as the risks of a double-dip recession in the northern hemisphere.

RBA governor Glenn Stevens noted earlier this week that “growth in wages has picked up a little, as had been expected”.

The latest employment report came after the Organisation for Economic Co-operation and Development said unemployment may have peaked among its member nations.

The average unemployment level in the OECD was 8.6 per cent in May, well above the Australian level, which remained below 6 per cent while the northern hemisphere slashed jobs.

“Cutting unemployment and fiscal deficits at the same time is a daunting challenge but it needs to be tackled head-on,” OECD secretary-general Angel Gurria said.

“Despite signs of recovery in most countries, the risk remains that millions of people may lose touch with the labour market.

“High joblessness as the new normal cannot be accepted and has to be tackled by a comprehensive policy strategy.”

Australia avoided the haemorrhaging in the labour market that the US, the world’s biggest economy, and much of Europe experienced as their economies slowed sharply.

A booming Chinese economy and its insatiable demand for minerals such as iron ore and coal provided Australia with a buffer against the icy economic winds.

Demand for labour in Australia has remained strong.

A private-sector survey by ANZ published earlier this week showed the total number of job advertisements rose 2.7 per cent in June from May, suggesting employers remained confident about the outlook for the domestic economy.

(Source: TheAustralian.com.au)