WELLINGTON: The Australian dollar powered up on Thursday following a strong jobs report, while the New Zealand dollar climbed to an 11-month peak after the country's central bank raised interest rates and signaled more tightening ahead.
The Aussie leapt more than half a cent to a peak of $0.9076, having recovered from Wednesday's one-week low of $0.8923.
It made sharp advances against the yen, pound and euro, showing gains of around 0.7 percent in the session.
Data showed Australian employment climbed 47,300 in February, more than double forecasts, while unemployment held at 6.0 percent as more people looked for work.
The upbeat result led investors to price out almost any chance of a further cut in rates, and to even toy with the idea of a rise late in the year.
Interbank futures imply less than a one-in-10 probability of any further easing, while swap markets give a 50-50 chance of hike on a 12-month horizon.
"The labour market is likely to be a key factor determining the timing of future rate increases from the RBA.
Typically, the RBA has only raised interest rates while the unemployment rate is falling," noted Paul Bloxham, chief economist for Australia at HSBC.
"We expect the unemployment rate could begin to decline in a meaningful way by the middle of this year - a factor potentially paving the way for rate hikes before the end of 2014."
Australian government bond futures dropped sharply, with the three-year bond contract down 8 ticks to 96.940. It briefly touched a three-month trough of 96.860.
The 10-year contract shed 3 basis points to 95.850, leading to a bearish flattening of the yield curve.
RBNZ LEADS THE PACK
The New Zealand dollar flew to $0.8567, its highest since April, having gained a full cent in the session.
A break above $0.8587 could pave the way to the 2013 high of $0.8676.
It was last at $0.8558.
The kiwi also scaled a fresh post float peak of 80.05 on a trade-weighted basis and bounced to a six-year high against the yen.
The gains came after the Reserve Bank of New Zealand (RBNZ) lifted its cash rate by an expected 25 basis points to 2.75 percent, putting it way ahead of most developed nations in tightening.
The RBNZ said it saw considerable momentum in the economy and raised its growth forecast to 3.5 percent for 2015, from 3.0 percent.
The RBNZ also said rates could rise by a further 100 basis points this year, and perhaps the same amount in 2015. Interest rate futures fell up to 8 ticks out to March 2015 as investors priced in the risk of a faster tightening.
"The RBNZ was reasonably upbeat and hawkish.
Until we see signs the economy is responding to interest rate hikes, the kiwi is likely to remain well bid," said Michael Turner, a rate strategist at RBC Capital Markets in Sydney.
New Zealand government bonds were firmer, sending yields as much as 3 basis points lower along the curve.
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