The Reserve Bank of Australia could cut its key interest rate after the unexpected soft employment data release today, according to economists.

Australia's unemployment rate increased 0.1 percentage points to 5.3 per cent in August 2011, the Australian Bureau of Statistics (ABS) said. The seasonally adjusted Australian unemployment rate increased 0.1 percentage points to
5.3 per cent in August.

The ABS reported the number of people employed decreased by 9,700 to 11,432,600 in August, driven by a decrease in full-time employment, down 12,600 people to 8,034,900, which was offset by an increase in part-time employment, up 2,900 people to 3,397,600.

The number of people unemployed increased by 18,400 people to 636,800 in August, reported the ABS.

HSBC chief economist Paul Bloxham said the August data shows that the economy has slowed into the third quarter and the jobless rate is trending upwards.

"The key question now is whether (the unemployment rate) keeps going up or not.

"If it only shows a modest rise, then rates will remain on hold. If the increase picks up pace, the case will build for a cut," Mr Bloxham said.