The jobless rate fell to 5.4 per cent in May, the lowest level it has been this year, as 12,000 people found work in the month.
While fewer Australians found employment than had been expected by economists, the drop in the unemployment rate from 5.6 per cent in April was a surprise and partly reflected a fall in the number seeking employment.
The employment rise reflected a 32,600 jump in part-time workers that was partly offset by a 20,600 drop in full-time staff.
The result does not change the interest rate outlook.
Many economists doubt there will be an increase in the cash rate until next year and that means the Reserve Bank won't be about to join the US Federal Reserve, which lifted its key rate for the seventh time in the past few years on Wednesday.
Reserve Bank governor Philip Lowe said in a speech on Wednesday conventional wisdom puts full employment in Australia at around a five per cent unemployment rate.
Dr Lowe told a conference in Melbourne it is possible an even lower rate could be achieved if the five per cent mark is approached at a steady pace, rather than too quickly.
"In a number of other countries, estimates of the unemployment rate associated with full employment are being revised lower as wage increases remain subdued at low rates of unemployment," he told the Australian Industry Group lunch.
"We have an open mind as to whether this might turn out to be the case here in Australia too."