Australian dollar gains as jobs jump, stoking rate-hike risk

SYDNEY: The Australian dollar hopped higher on Thursday after surprisingly strong jobs data narrowed the odds of a further hike in interest rates, intensifying the upward pressure on bond yields from surging oil prices.

The upbeat release lifted the Aussie 0.3% to $0.7016, setting up a test of the week’s top of $0.7026. Near-term support lies at around $0.6960.

The figures showed employment jumped 76,300 in June, the biggest rise in 14 months and far above expectations for 15,300.

Unemployment still held steady at 4.4% due to a sharp increase in the number of people looking for work, suggesting the supply of labour was meeting demand.

The strength in hiring means more people have money to spend and that should reassure the Reserve Bank of Australia that the economy can bear further rate hikes if needed.

The central bank has raised rates three times this year to 4.35% and the latest spike in oil prices had already added to the risk of another increase.

Markets now imply a 31% chance of an August hike, up from 23% before the data was released, while the probability of a move by December picked up to 92% from 80%.

“With employment growth trending higher and labour market indicators more broadly still showing signs of resilience, the RBA is likely to retain its tightening bias,” said Abhijit Surya, a senior APAC economist at Capital Economics.

“If next week’s CPI data confirm that underlying inflation accelerated markedly in Q2, there will be a strong case for the RBA to deliver another 25bp hike at its August meeting.”

The consumer price data are due on July 29 and are expected to show core inflation rose 0.9% in the June quarter, lifting the annual pace to 3.7% from 3.5%.

That would be well above the RBA’s target band of 2% to 3%, though a touch lower than the central bank’s own forecast of 3.8%.

Australian 10-year yields put on another 2 basis points to reach a two-month top of 5.001%.

Yields have risen 27 basis points so far in July as rising fuel prices threatened to stoke inflation.

Across the Tasman, the kiwi dollar was steady at $0.5818 , after dipping 0.2% overnight, away from the week’s high of $0.5873. Support comes in at $0.5744.