A cooling labour market has added to expectations the Reserve Bank won't lift interest rates further.
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The Australian Bureau of Statistics reported on Thursday the national jobless rate rose 0.2 percentage points to 3.7 per cent in July.
Employment dropped by 14,600 people and the number of unemployed increased by 35,600 people.
The participation rate also decreased 0.1 percentage point to 66.7 per cent.
Economists said the result owed much to a seasonal swing at the end of the financial year and school holidays.
But a series of interest rate rises has also been taking the heat out of inflation and slowing the economy.
The Reserve Bank noted in its most recent board meeting minutes it believed the labour market was at a "turning point".
"The bigger picture is that the Reserve Bank will take some comfort from the fact that the labour market is starting to cool," Capital Economics' Abhijit Surya said.
"We're sticking with our non-consensus view that the RBA won't lift rates any higher."
Ben Udy, lead economist for Oxford Economics Australia, described the data as the "final nail in the coffin for any lingering expectations of a rate hike in September".
ANZ's Adam Boyton said he expected the cash rate to remain on hold "for quite some time".
The RBA has paused the cash rate at 4.1 per cent for two months in a row following 400 basis points of hikes since May 2022.
The underemployment rate remained at 6.4 per cent in July, about 2.4 percentage points lower than before the pandemic.
Across the states, unemployment was highest in Tasmania (4.7 per cent), followed by Queensland (4.5 per cent), SA (4.0 per cent), NT (3.9 per cent), ACT (3.8 per cent), Victoria (3.6 per cent), WA (3.4 per cent) and NSW (3.3 per cent).
Treasurer Jim Chalmers said the uptick in the jobless rate was expected.
"Unfortunately that's what we've seen in these numbers today, but it's still pretty remarkable, given everything that is coming at us from around the world, that we've got an unemployment rate with a three in front of it."
He said the labour market was still incredibly strong.
"The RBA will weigh this up in the same way it weighs up ... some of the other issues in our economy at the moment."
Opposition employment spokeswoman Michaelia Cash said the jobless rise was concerning "especially on the back of confirmation earlier in the week that real wages are continuing to go backwards under Labor".
"Mr Albanese has taken the strong labour market left by the previous coalition government for granted and is not interested in strengthening our economy,'' Senator Cash said.
New ABS data showed the gender pay gap is at a record low.
Australian women are earning, on average, $13,120 less in their annual base salary than men each year.
The gap of 13 per cent is an 0.3 percentage point decrease on figures released in February.
Workplace Gender Equality Agency CEO Mary Wooldridge said it should be a springboard for renewed action by employers.
Australian Associated Press
