The Australian dollar jumped to a five-week peak on Thursday after a stunningly strong jobs report rekindled the risk of a rate hike next year and put the squeeze on short positions. The Aussie dollar hopped up to $0.7666, from $0.7630, having already climbed 1 percent overnight when the Federal Reserve hiked US rates but stuck to a gradual path for future moves.
The break of resistance at $0.7654 improved the technical background and opened the way to $0.7695 and $0.7730. Sparking the latest jump was data showing Australian employers took on a net 61,600 new workers in November, far above forecasts of an 18,000 rise.
That was comparable to a 736,000 increase in US payrolls and would be a major Christmas present to the Reserve Bank of Australia (RBA) which has been counting on a tightening labour market to lift wages and incomes.
"An encouraging report for the economy, government and RBA," said Ivan Colhoun, chief economist markets at NAB. "We'll need to see some further declines in underemployment, but if they are forthcoming, wages growth should begin to lift and the RBA will likely be able to remove some monetary accommodation during 2018."
NAB is forecasting two quarter point rate increases in the second half of next year. The market is more circumspect, with futures not fully priced for a single rate rise until February 2019. The New Zealand dollar steadied at $0.7006 having surged 1.3 percent overnight following the Fed's policy statement, which was considered less hawkish than some had been wagering on.
The move took out major resistance at $0.6980 and opened the way to the next chart target at $0.7077. The country's new Labour government on Thursday flagged higher spending on families and a commitment to boosting housing supply as it scrapped tax cuts proposed by the previous administration, and targeted a smaller surplus for next year. It increased its capital spending plans to NZ$32.9 billion across the next four years, up from NZ$26.2 billion in the August update.
New Zealand bonds rallied in line with US Treasuries, where yields fell sharply in the wake of the Fed decision. Yields were down as much as 8 basis points at the long end of the curve. Australian government bond futures fell back after the upbeat jobs data, with the three-year bond contract off 6 ticks at 97.930. The 10-year contract eased 2.75 ticks to 97.4275.
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