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Australia's unemployment rate has risen to 3.7 per cent in April, defying market expectations with economists forecasting it would remain flat.

New data from the Australian Bureau of Statistics (ABS) showed that in April 2023 around 4000 Australians lost their jobs while 18,000 people became unemployed.

The unemployment rate was 3.5 per cent in March.

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AFR, Generic, Cost of Living Everyday expenses, Coffee, Immigration, City Living, busy tables, hospitality, cafe , 15th May 2023 Photo: Natalie Boog

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ABS head of labour statistics Bjorn Jarvis said even though the unemployment rate has risen, it is comparatively historically low to the levels seen in 2022.

"With employment dropping by around 4000 people and the number of unemployed increasing by 18,000 people, the unemployment rate rose to 3.7 per cent," Jarvis said.

"The small fall in employment followed an average monthly increase of around 39,000 people during the first quarter of this year."

The employment-to-population ratio fell by 0.2 per cent while the participation rate decreased by 0.1 per cent.

"Even with these falls, both indicators were still well above pre-COVID-19 pandemic levels and close to their historical highs in 2022," Jarvis added.

Jarvis added last month's data revealed a strong growth in the number of hours Aussies worked, the high employment-to-population ratio and participation rate as well as the historically low unemployment rate leads to a tight labour market.

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Today's data, which largely defied market expectations, will contribute to the Reserve Bank of Australia's June decision on interest rates after relentlessly hiking the cash rate since May 2022.

The cash rate currently sits at 3.85 per cent.

Governor Philip Lowe flagged in the April rate rise that more hikes were possible as inflation, which currently sits at 7 per cent, remains difficult to control.

"Members also agreed that further increases in interest rates may still be required, but that this would depend on how the economy and inflation evolve," the central bank said in its April meeting minutes.

The bank also said the unemployment rate remains historically low but expects it to reach 4.5 per cent by late 2024.

The unemployment rate, the labour market and inflation are key indicators contributing to the bank's interest rate decision-making. 

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