Australia's labour market shows signs of cooling with a surprise fall in employment, raising the case for more Reserve Bank interest rate cuts.

Although the unemployment rate held steady at 4.2 per cent in August, 5400 jobs were lost from the economy, the Australian Bureau of Statistics reported on Thursday .

Forecasters had pencilled in a rise in employment of more than 20,000.

Despite the fall, Australia's relatively low unemployment rate was unchanged because the number of unemployed people fell by 900, head of labour statistics Sean Crick said.

"This meant that the unemployment rate remained steady at 4.2 per cent whilst the participation rate fell by 0.1 percentage points to 66.8 per cent," he said.

IG market analyst Tony Sycamore said the fall in employment and participation i

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