Key Takeaways
- Unemployment fell to 4.1% in December (from 4.2%); employment up +65,000, well above expectations.
- Participation lifted to 66.7%; hours worked at a record high — labour market remains tight.
- November inflation slowed to 3.4% (lowest since August); trimmed mean eased to 3.2%.
- Markets repriced rate expectations sharply: probability of a February 3 hike jumped to ~56% from 27%.
- AUD at a 16-month high around US$0.679; hike fully priced by May.
Market UpdateInflation data holds the casting vote
Australia’s unemployment rate fell to 4.1% in December, down from 4.2%, as employment rose by a strong 65,000, well above expectations. The increase was broad-based, led by full-time jobs, with participation lifting to 66.7% and hours worked reaching a record high. Underemployment and underutilisation also declined, suggesting spare capacity continues to shrink.
Against this backdrop, inflation slowed to 3.4% in November, its lowest level since August, but remains above the RBA’s 2–3% target band. Housing inflation eased, helped by slower electricity price growth, while price pressures moderated across several discretionary categories. Core inflation (trimmed mean) eased slightly to 3.2%, and monthly CPI was flat.
Westpac argues the RBA does not mechanically react to inflation prints — but when other data are finely balanced, the trimmed mean effectively gets the casting vote. With labour market and spending data stronger than expected, that threshold is now lower.
If a hike occurs, Westpac expects it to be “one and done”, warning that pushing rates back near prior peaks to remove the final half-point of inflation risks unnecessary economic drag later on.
Consumer ConfidenceConfidence drops 5.2pts
ManufacturingManufacturing momentum: steady expansion
- Australia’s Manufacturing PMI rose to 52.4 in January, up from 51.6 — continued expansion (above 50 = expansion).
- Growth driven by renewed strength in new orders and output, supported by both domestic demand and overseas orders.
- Business confidence positive, with firms expecting stronger output over the year ahead.
Foreign ExchangeAussie dollar rallies on risk and rates
- The AUD strengthened to around US$0.679, reaching a 16-month high.
- Improving global risk sentiment helped — Trump ruled out using force on Greenland and signalled no new tariffs on European nations; a deal framework was announced.
- Strong Australian jobs data + rising household spending suggest the economy may be accelerating faster than previously expected.
- Markets aggressively repriced: probability of a 25bp Feb 3 RBA hike rose to ~56%, up from 27% prior to the labour data. Hike fully priced by May.
- Q4 CPI next week is the next major catalyst — any upside core inflation surprise could bring forward tightening.
Sources: Westpac Weekly (19 January), ABS, Macrobond, Westpac Economics, ANZ-Roy Morgan, Trading Economics, S&P Global. This summary is for informational purposes only and should not be considered financial advice.