SYDNEY/WELLINGTON: The Australian dollar fell a full cent on Thursday, hit by a surprisingly steep decline in employment that prompted markets to lower the risk of a near-term interest rate hike.
The Aussie dollar was knocked across the board, falling around one percent on the kiwi, yen, Swiss francs, sterling and even euro.
It dived a cent to a low of A$1.0585 before clawing back to $1.6004. It was already been under pressure on heightened risk aversion spurred by a rout in commodity prices.
The closely watched report showed employment fell 22,100 as full-time jobs dropped 49,100, far worse than the most pessimistic forecast for a decline of 5,000 jobs.
"Everyone thinks it's become a custom to the obligatory 50,000 increase each month and all of the sudden you get one that says 50,000 losses and participation falling," said David Scutt, a trader at Arab Bank Australia.
"Coupled with that Greece and falling commodity prices, it was probably the perfect storm for the Aussie just after that data," he added.
While the jobless rate held steady at a remarkably low 4.9 percent, the sharp fall in full-time jobs grabbed market attention and cast doubt on how soon the Reserve Bank of Australia will raise its 4.75 percent cash rate.
Bank bill futures rose as much as 10 ticks, while interbank futures gained up to 7 ticks, driving their implied yields lower.
The June contract now implies no chance of a rate hike, while the December contract has a 90 percent chance of a 25 basis points tightening priced in.
Some analysts thought the markets over-reacted.
"The moves were somewhat overdone given the hawkish tone of the RBA's monetary policy statement last week," said CitiFXWire in a note to clients.
The RBA said on Friday in its quarterly policy statement that rates will rise at some point to keep a lid on inflation.
Important support for the Aussie is now located at last week's low at A$1.0537, though traders see risk in the near term for further declines. Resistance is pegged at $1.0664, then $1.0781.
Australian bond futures gained sharply, with the three-year contract up 0.06 points at 94.890, while the 10-year contract rose 0.065 points to 94.615.
KIWI ON THE DEFENSIVE
The New Zealand dollar remained on the defensive, holding around $0.7905, struggling to get past strong barrier at $0.7975 with the reversal in commodities.
"There is a bit of risk-off mentality at the moment," said Daniel Brdanovic, chief manager Treasury at HSBC in Auckland.
"There's a downward bias to kiwi."
The New Zealand dollar barely reacted to data showing manufacturing activity expanding for the first time in three months in April and flat food prices.
However, it made gains on the wobbly euro, which hovered above a 3-month low of NZ$1.7926. The euro has been hammered across the board this week on persistent worries about euro zone sovereign debt problems and speculation that Greece will receive more bailout funding.
New Zealand government debt rose, with local yields down 5 basis points broadly, after the latest two bond tenders saw sustained strong demand.
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