Australian dollar gets much needed lift from strong jobs, bond yields rise

SYDNEY: The Australian dollar rebounded from a one-month low and bond yields gained on Thursday after jobs data again blew past expectations, leaving hopes for a year-end rate cut in tatters.

However, the Aussie’s gains were capped as risk sentiment was undermined a little by a disappointing housing policy briefing in China that sent prices for iron ore - Australia’s biggest export to China - down more than 3% in Asia.

The Aussie hit an intraday high of $0.6710 before paring some gains and were last up 0.3% at $0.6684.

It still faces resistance at $0.67, while support is at the 200-day moving average of $0.6626. Data showed the economy added 64,100 new jobs in September, well above market forecasts for a 25,000 rise, while the jobless rate held steady at a downwardly adjusted 4.1%, little changed for the past six months.

It was an unequivocally strong report, with measures like hours worked and underemployment all pointing to the tightness in the labour market.

Swaps now imply a 31% chance of a rate cut from the Reserve Bank of Australia by the year end, down from 46% before the data.

Australian government bond yields rose, with three-year yields up 5 basis points (bps) to 3.812%.

Ten-year yields also gained 3 bps to 4.241%. Gareth Aird, head of Australian economics at Commonwealth Bank of Australia, conceded that his conviction in the call of a December rate cut has dipped because of the jobs data.

Australian dollar set for solid weekly gains on yen, kiwi

“While the risk has firmly shifted to a later start date for the first reduction in the cash rate, we stick with our call,” said Aird, adding that he sees downside risk to third quarter inflation data and GDP.

Analysts at HSBC even raised the possibility of no rate cut at all next year, saying they see “a growing risk that the RBA may miss the easing phase altogether.”

The kiwi was nursing losses at $0.6060, although it did find support at $0.6050, a level it had fallen through after a soft reading on inflation raised the prospects of even larger rate cuts.

Swap traders are overwhelmingly betting that the Reserve Bank of New Zealand will cut by another 50 bps in November, although there is a small risk - about 5% - for a 75 bp move.