SYDNEY: The Australian dollar jumped on Thursday after a surprisingly strong jobs data added to the risk of further hikes in interest rates and sent bond yields sharply higher.
It got an added lift from Beijing’s latest efforts to support its currency, as the Aussie is often sold as a liquid proxy for the yuan during times of weakness.
The Aussie climbed 0.8% to $0.6832, more than recouping an overnight loss.
The break of resistance around $0.6830, opens the way to a major barrier at $0.6895.
The kiwi dollar followed with a gain of 0.6% to $0.6302, having slipped as far as $0.6225 overnight before finding support.
Australian data showed employment jumped 32,600 in June, more than twice the median forecast and on top of a huge 76,600 gain in May.
Almost all the jobs were full-timers, while hours worked were also upbeat. The jobless rate stood at 3.5%, just a whisker above the 50-year low of 3.4% hit last October.
Australian dollar struggles as market reverses course on rates
The lack of any loosening in the drum-tight labour market will be a challenge for the Reserve Bank of Australia (RBA), which paused its policy tightening earlier this month in order to weigh the impact of the hefty hikes already delivered.
RBA Governor Philip Lowe said it was “possible” the 4.1% cash rate might have to rise again, but sounded in two minds about the prospect.
“The incredible strength of the labour market will continue to keep upward pressure on wages and inflation,” said Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia.
“The Reserve Bank is not in a position where it can tolerate any upside surprises to the inflation outlook, and we expect to see two more rate hikes in the coming months.”
Markets reacted by nudging up the probability of a rate hike in August to around 43%, from 35% before the data.
The projected peak for rates also rose to 4.42%, from 4.35%.
Three-year bond futures slid 15 ticks to 96.070 on the news, while yields on 10-year bonds rose 6 basis points to 3.970%.
Adam Boyton, head of Australian economics at ANZ, noted that rapid population growth was lessening upward pressure on wages.
The labour force expanded by 59,000 in June, staying ahead of jobs growth.
“While the labour market is still very tight, there are some early signs of an easing and a drift higher in the unemployment rate over coming months,” said Boyton, who expects the RBA to hold rates at 4.1% for an extended period.