Australian dollar stung as jobs blow slashes chance of rate rise

SYDNEY: The Australian dollar swerved lower on Thursday after a surprisingly soft jobs report led investors to scale back wagers on another rise in interest rates, fuelling a much-needed rally in the bond market.

The Aussie slid 0.4% to $0.6945, having already peeled away from a top of $0.7014 overnight as the greenback climbed.

Support now lies around $0.6933, and a recent 13-week trough of $0.6904.

Data showed Australian employment fell 39,300 in September, the largest drop since early last year and a shock to analysts who had looked for a rise of 20,000.

The jobless rate stayed at a five-year high of 4.7%, with August revised up from an initial 4.6%.

That will be a blow to the Reserve Bank of Australia, which had not expected to see 4.7% reached until the end of 2027.

Markets reacted by paring the chance of a November rate hike to around 9%, from 32% before the data, while a December move came down to 28% from 56%.

The RBA has already lifted rates by 100 basis points this year to 4.6% as it struggles to restrain stubborn inflation and had left the door open to more tightening if needed.

“The clear deterioration in labour market conditions should give the RBA greater confidence that policy settings are adequately restrictive,” said Abhijit Surya, a senior APAC economist at Capital Economics.

“With the full impact of policy tightening yet to be felt, we think the labour market will slacken further,” he added.

“That should ease RBA concerns about persistent inflation and strengthen the case for keeping interest rates on hold.” Markets still have 17 basis points of hikes priced in by May next year, though that pales in comparison to the 75 basis points of tightening implied for the US Federal Reserve.

A hot reading on US core inflation had seen the greenback jump overnight, while also stoking credit concerns in the AI sector and slugging Wall Street.

The soft jobs report saw Australian 3-year bond futures jump 11 basis points to 95.190, leaving cash yields 2 basis points under Treasuries.

Across the Tasman, the New Zealand dollar was holding on at $0.5609, after hitting a fresh 17-month low of $0.5566 overnight.

A sustained breach of $0.5580 support opens the way to a low from April last year at $0.5485, and then a trough from 2020 at $0.5469.