SYDNEY: The Australian dollar got a much-needed lift on Thursday after a resoundingly strong set of jobs data reinforced market wagers on an early rise in interest rates, keeping short-term bond yields up at three-month highs.
The Aussie rose 0.3% to $0.7234 and away from a $0.7170 low hit early in the week. The next stops are resistance at $0.7277 and $0.7314.
The New Zealand dollar lagged at $0.6766, in part because the Aussie jumped to a six-month top on the kiwi at NZ$1.0687.
The gains were underpinned by news China had cut lending rates for corporate and household loans, while lowering a mortgage reference rate for the first time in nearly two years.
Australia dollars eases, even as market wagers RBA has to follow hawkish Fed
China is Australia's single biggest export market and any policy change that is seen supporting demand there is viewed as positive for the Aussie.
At home, data showed a solid 66,800 rise in jobs in December, pushing the unemployment rate down to its lowest since mid-2008 at 4.2%.
That would be a major surprise for the Reserve Bank of Australia (RBA) which forecast a rate of 4.75% and had not seen unemployment reaching 4.2% until the end of this year.
"The upshot is that the labour market is now at its tightest in years, and the continued rise in job vacancies suggests it is set to tighten further in the months ahead," said Ben Udy, an economist at Capital Economics.
As a result, he expected the RBA to cease its A$4 billion-a-week bond purchase programme at its Feb. 1 policy meeting with such quantitative easing clearly no longer needed.
Markets are already far ahead of the RBA and imply around a 70% chance of a first rise in the 0.1% cash rate by May, with June seen as a done deal.
Rates are projected to be around 1% by the end of the year and 1.5% by mid-2023, even though the RBA has long insisted that no hike was likely in 2022.
Likewise, three-year bond yields have shot up 14 basis points just this week to 1.16%. Apart from a very brief spike to 1.267% last October, yields have not been at these levels since the middle of 2019.
Yields on 10-year bonds have climbed steadily over the past three weeks to reach 1.978% and a break above 2.07% would take them to heights not seen since early 2019.
Analysts at Westpac now predict yields will rise further to around 2.5%, having just brought forward their predicted timing for a first rate hike to August.