Thursday's data from the Australian Bureau of Statistics (ABS) showed 29,000 net new jobs were created in June, in-line with forecasts for a 30,000 gain and on top of 115,100 in May. The increase was entirely led by full-time jobs, which jumped by 51,600.

Unemployment dropped to 4.9%, the lowest since December 2010, when a mining investment boom that ended in 2013 was powering Australia's economy.

"An interest rate rise in 2022 looks increasingly likely," said Russel Chesler, head of investments at VanEck Australia.

Many economists expect the Reserve Bank of Australia (RBA) to start raising rates by late next year or early 2023 despite policymakers' insistence the conditions for rate increases - higher inflation and employment - are unlikely to be met before 2024.

Australia's jobless rate has improved from a high of 7.4% in July 2020 far earlier than expected, sparking hopes of a faster increase in wage growth and inflation.

This month, the RBA said it would slow the pace of its bond purchases to A$4 billion a week from September from A$5 billion currently, reflecting a solid recovery in the labour market.

Thursday's strong figures come despite a two-week lockdown in Melbourne, Australia's second-most populous city, in June. There are fears an ongoing lockdown in the biggest city, Sydney, could shrink the economy and hit overall jobs momentum.

The Sydney cluster now stands at over 900 cases with two deaths, the first for the country this year.

Economists fear the five-week lockdown, due to end on July 30, will be extended as authorities aim for near zero new cases who have been active in the community. Only 10% of the population is fully vaccinated.

Uncertainty about when Sydney might reopen left the Aussie dollar struggling at $0.7462.

"The pandemic continues to create uncertainty across the country, undermining our progress," said Callam Pickering, economist at global job site Indeed. "If we can avoid another significant lockdown - admittedly a big if - then we expect the labour market to tighten considerably by the end of the year."

Australia was among the few countries in the world to successfully curb the pandemic last year and broadly reopen its domestic economy. It has since been plagued by numerous small outbreaks and snap lockdowns in its major cities, making the economic recovery uneven and bumpy.

(Reporting by Swati Pandey and Wayne Cole; Editing by Jacqueline Wong, Lincoln Feast and Gerry Doyle)

By Swati Pandey