SYDNEY (Reuters) - Australia employment unexpectedly dipped in April after two months of outsized gains, and the jobless rate also ticked up in a sign the red-hot labour market might be cooling, bolstering the case for a pause in interest rate hikes next month.

Figures from the Australian Bureau of Statistics released on Thursday showed net employment fell by 4,300 in April from March, when it rebounded by a revised 61,100.

Market forecasts had been for a rise of 25,000.

The jobless rate ticked up to a three-month high of 3.7% from a near 50-year low of 3.5%, when analysts had expected no change.

Hours worked, however, increased 2.6% in the month. The local dollar eased 0.4% to $0.6630. Three-year bond futures reversed earlier declines to be flat at 96.88.

Markets reinforced bets of a rate pause next month but were pricing in some risk of a move in August or September.

Full-time employment fell by 27,100 in April after a surge of 72,200 the previous month.

The participation rate held near record levels at 66.7%, suggesting the supply of labour was rising to meet demand, thanks to more migrants entering the workforce.

The Reserve Bank of Australia (RBA) has already hiked interest rates by a hefty 375 basis points to an 11-year high of 3.85%, including a surprise increase earlier this month, as it warned of upside risks to the inflation outlook.

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“We expect to see a gradual softening in labour market conditions over 2023 as the impact of interest rate increases to date start to bite,” said Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia.

“Whether today’s data are the start of that process or just typical volatility will be a key question at the upcoming RBA meeting.

At the margin, these data weaken the case for another rate hike,“ Langcake added. Data from employment services provider SEEK Ltd on Thursday showed job ads fell for the third straight month in April, but they remained 25% above pre-COVID levels.

Inflation, which was running at 7%, is only projected to return to the top of the bank’s 2% to 3% target range by mid-2025, as RBA Governor Philip Lowe sought to preserve the strong job gains during the pandemic.

A major relief for policymakers is that the risk of a damaging price-wage spiral remained low so far, with data on Wednesday showing that quarterly gains in wages missed forecasts with a rise of 0.8%, which also adds to the case for a pause next month.

“Today’s data and WPI yesterday together reduce the risk the RBA would opt to raise rates again as soon as June and together are helpful at the margin on the skew of risks around the RBA’s inflation outlook,” said Ivan Colhoun, an economist at National Bank of Australia.

“NAB’s view is that there will likely be at least one further rate increase, but we remain close to the peak of this interest rate cycle.” Reuters