Australian banking stocks closed sharply higher on Thursday, with Westpac Banking Corp spearheading the advance as resilient labor market figures revived expectations that the Reserve Bank of Australia may maintain a restrictive monetary policy stance. The financial sector's strong performance provided a significant lift to the broader market as trading concluded.
Market Movement and Sector Performance
Westpac shares finished the session at A$41.91, representing a solid gain of 2.7%. This outperformance was mirrored across the banking sector, with the financials sub-index climbing 1.3% overall. The rally wasn't isolated to Westpac; National Australia Bank continued its upward trajectory, building on positive momentum from its quarterly earnings report released the previous day.
National Australia Bank had disclosed first-quarter cash earnings of A$2.02 billion on Wednesday, marking a substantial 16% increase compared to the same period last year. This robust result propelled its shares to a record high, according to market reports.
Economic Data Driving Sentiment
The catalyst for Thursday's banking sector surge emerged from the latest employment statistics released by the Australian Bureau of Statistics. Data for January revealed the unemployment rate remained steady at 4.1%, defying expectations of a modest increase. The economy added 17,800 positions during the month, with a notable shift toward full-time employment, which expanded by 50,500 roles. The participation rate held firm at 66.7%.
This labor market resilience suggests underlying economic strength, a condition that typically supports the case for sustained higher interest rates. The RBA recently increased its cash rate target by 25 basis points to 3.85%, and traders have been actively recalibrating their expectations for future monetary policy moves in response to incoming data.
Expert Commentary and Inflation Focus
BetaShares chief economist David Bassanese emphasized that the central bank's attention will remain firmly fixed on upcoming inflation readings, particularly given "the failure of the labour market to weaken." This perspective underscores how employment metrics directly influence the RBA's policy calculus, especially when price stability remains its primary mandate.
Market participants are now turning their attention to the next critical data point: the monthly Consumer Price Index figures for January, scheduled for release on February 25. Economists widely regard this report as crucial for shaping short-term interest rate expectations ahead of the RBA's policy gathering.
Upcoming Central Bank Decision and Corporate Calendar
The Reserve Bank of Australia has scheduled its next monetary policy meeting for March 16–17, with the official decision announcement set for 2:30 p.m. on the final day. This meeting will follow closely after the CPI release, creating a high-stakes sequence of events for financial markets.
For Westpac specifically, investors are also monitoring the bank's interim financial results and dividend announcement, scheduled for May 5. This aligns with the conclusion of its financial half-year on March 31, according to the company's published investor calendar.
Market Risks and Considerations
While the immediate reaction to the jobs data was positive for bank shares, analysts note significant risks on both sides of the rate outlook. Softer-than-expected inflation numbers later this month could quickly unwind recent gains if speculation about further rate hikes diminishes. Conversely, should the RBA implement additional tightening and household financial pressures intensify, concerns about credit quality within bank portfolios could move to the forefront.
The interplay between monetary policy, economic data, and bank profitability will continue to drive sector volatility in the coming weeks as markets digest each new piece of information in the lead-up to the RBA's March decision.
