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SINGAPORE: The Australian dollar received a brief respite on Friday after a resoundingly strong jobs report prompted some analysts to tip a super-sized hike in interest rates next month, leading to a marked flattening in the yield curve.

The Aussie last traded at $0.67435, having bounced off a fresh two-year trough of $0.6682 overnight.

That still left it down 1.6% for the week as global recession risks and losses in commodities took a toll.

It gained some support after data on Thursday showed employment surged 88,4000 in June, more than double market forecasts, while the unemployment rate dived to a 48-year low of 3.5%.

The rapidly tightening labour market led several houses, including NAB, Goldman Sachs, Nomura and TD Securities, to argue the Reserve Bank of Australia (RBA) would raise interest rates by 75 basis points (bp) next month.

“We think it will be impossible for the RBA to ignore this data and hawkish central bank developments elsewhere,” said Nomura’s Andrew Ticehurst.

Australian dollar gets some reprieve from record trade data

He added that a 100-bp move could not be ruled out if second-quarter inflation data delivers a significant upside surprise on July 27. Markets have fully priced in a 50-bp hike next month, with around a 16% chance of a 75-bp increase.

Three-year yields had popped up to 3.11% and shrunk the spread to 10-years to 33bps, from 46bps at the start of the week. Given how the RBA meets every month, analysts at the Royal Bank of Canada said the central bank may prefer a steadier course of further 50 bps moves.

They expect the RBA to raise rates by 50 bps in August and September, followed by 25 bps in October and November.

The Aussie was also aided by reports that China is considering ending its unofficial ban on importing Australian coal, offering relief to the world’s second largest coal exporter.

The kiwi similarly caught a lift from the strengthening Aussie on Friday and stood at $0.61315. It is down 0.9% for the week.

However, both have lost out to the surging US dollar, which has been supported by safe haven flows amid recession fears, and greater expectations of a 100 bps rate hike by the Fed following red-hot US inflation data. Recession concerns also remain a huge overhang for the risk-sensitive currencies.

“Any repricing higher of RBA rate hikes will unlikely provide material support to AUD against a backdrop of slowing global growth,” said Carol Kong, currency strategist at Commonwealth Bank of Australia.

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