Australia's unemployment rate rose unexpectedly in July to its highest level since November 2010, and may rise further in coming months, economists say.
The unemployment rate rose to 5.1 per cent, from 4.9 per cent in June, the Australian Bureau of Statistics (ABS) said.
The median market forecast was for it to stay at 5.1 per cent for the month.
Total employment was steady at 11.450 million in the month.
The July participation rate stayed steady at 65.6 per cent, coming in as forecast.
Macquarie Research economist Ben Dinte says the jobs data doesn't represent a major deterioration in employment market conditions.
"But it is consistent with what we've been seeing in the business surveys in terms of business confidence, hiring intentions, and also in terms of job ads," he said.
"We expect the unemployment rate to gradually tick higher, not racing up towards six per cent, but we do see a gradual increase rather than a decline."
Mr Dinte says the Reserve Bank of Australia (RBA) will closely monitor the unemployment rate in the coming months.
Rate cut speculation
The RBA has kept the cash rate at 4.75 per cent since November 2010 and there has been recent speculation from economists and the money market that the central bank may cut the rate.
Reasons for a possible rate cut include weak global financial markets, but also softness in the non-mining sectors of the Australian economy.
"The increase in the month won't be too alarming for them yet," Mr Dinte said.
"If we see further increases in the unemployment rate, that'll be a key indicator to watch in terms of people who are looking for potential rate cuts."
The Australian dollar dropped almost one US cent after jobs data was released at 1130 AEST.
JP Morgan interest rate strategist Sally Auld said the fixed income market would take the data as being soft, mainly due to the fall in full-time employment and the jump in the unemployment rate.
Futures prices for the cash rate, which the central bank raises or lowers to control inflation, rallied shortly after the data was released, Ms Auld said.
The market was now pricing the cash rate to be around 3.5 per cent, or lower, by the year's end.
"The point is that there's so much priced in to our market already that it was going to have to be a really weak number in order to gee people up."
"The market is better supported but you're not seeing a huge change in pricing only because so much was priced in before we got the numbers."
Consistently soft
UBS chief economist Scott Haslem said the soft result was consistent with recent job ads data.
"Certainly the forward looking indicators of the labour market ... do suggest that employment growth, while still around two per cent, is likely to ebb off or slow down over coming months," he said.
Mr Haslem said this could cause unemployment to creep up before the end of the year, but he did not expect a dramatic rise.
"It is quite clear that outside of the mining capex (capital expenditure) and construction sectors, activity is pretty soft," he said.
"Having tooled up with employees in the second half of last year and earlier this year, we are seeing businesses slow down their hiring rate and that is causing unemployment to drift up."
AAP