Jobs data 'final nail in the coffin' for rate rise

The seasonally adjusted unemployment rate rose to 4.6% in August, according to the Australian Bureau of Statistics (ABS).

"This month there was 39,000 more people in employment, and 28,000 more people in unemployment," ABS head of labour statistics Sean Crick said.

Part-time employment rose by 46,000 people in August, while full-time employment fell by 6000 people.

"This August we recorded a higher proportion of people who were previously not in the labour force moving to being unemployed, compared to recent years," Crick said.

"The growth in the size of the labour force resulted in the participation rate increasing by 0.2 percentage points to 67.1%."

The underemployment rate fell by 0.1 percentage points to 6.2%.

Despite the rise in the unemployment number, Betashares chief economist David Bassanese said the overall strength in employment will likely be the final nail in the coffin for a Reserve Bank of Australia (RBA) interest rate increase next week.

"All up... the strength in employment during August needs to be taken with a grain of salt. That said, the RBA will likely be guided by the still reasonably firm range of other labour market indicators, such as job advertisements and corporate hiring intentions," Bassanese said.

"For the RBA, the lift in unemployment will likely be regarded as unfortunate, but the price that needs to be paid to create more slack in the economy and lower domestic-demand-driven inflation pressure.

"My base case remains that the RBA will raise interest rates 0.25% next week to 4.6%, with an even-odds chance of a follow-up hike on Melbourne Cup Day in early November."

VanEck head of investments and capital markets Russel Chesler agrees there is little else for the RBA to do except lift interest rates.

"The slight softening in the labour market isn't enough to stop the RBA raising rates next week and may well need to increase rates again this year, most probably at the December meeting," he said.

"We could even see a third increase next year bringing the terminal rate for this cycle to 5.4%, the highest the RBA cash rate has been since 2008."