Australia dollar skids as jobless jump stokes rate cut pressure

SYDNEY: The Australian dollar slid on Thursday after jobs data badly missed forecasts and unemployment hit highs not seen since late 2021, stoking market wagers for a cut in interest rates.

Employment rose by just 2,000 in June, when analysts had looked for a gain of 20,000, while unemployment climbed to 4.3%, from 4.1%, breaking a long run of stable readings.

The jobless rate had held between 3.9% and 4.2% since late 2023 even as the broader economy slowed, a surprising resilience that gave the Reserve Bank of Australia scope to hold rates at 3.85% this month to await more data on inflation.

The Aussie quickly fell 0.7% to $0.6487 in reaction as markets lifted the already elevated chance of a quarter-point move in August to around 90%.

The implied floor for rates also dipped to 3.05%, from 3.12% ahead of the jobs figures.

“The upshot is that the RBA is almost certain to cut rates by 25bp at its meeting in August,” said Abhijit Surya, a senior APAC economist at Capital Economics.

“In fact, a larger 50bp cut could be on the table again if inflation data due by the month end confirm that inflationary pressures remain benign.”

The consumer price report for the June quarter is out on July 30 and analysts had already assumed a manageable rise of 0.6% to 0.7% in core inflation would open the door to a cut.

The likelihood of lower cash rates saw three-year bond futures jump 8 ticks to 96.570, and away from a two-month low of 96.45 hit the previous session. Yields on 10-year bonds dipped 4 basis points to 4.354%.

The kiwi dollar eased in sympathy to $0.5925, having been as low as $0.5914 overnight. Support lies around $0.5884, with resistance at $0.5980. New Zealand data showed a sharp 1.2% jump in food prices in June which lifted annual growth to 4.6%.

Prices for butter alone were up almost 47% on the year.

Satish Ranchhod, a senior economist at Westpac, said the overall CPI could pick up to 2.8% in the June quarter, from 2.5% the previous quarter and above the Reserve Bank of New Zealand’s forecast of 2.6%.

The central bank paused its rate cuts this month to await the full inflation report, but indicated further easing was likely given the amount of spare capacity in the economy.