Australian dollar stung as jobs blow slashes chance of rate rise
SYDNEY: The Australian dollar swerved lower on Thursday after a surprisingly soft jobs report led investors to scale back wagers on another rise in interest rates, fuelling a much-needed rally in the bond market. The Aussie slid 0.4% to $0.6945, having already peeled away from a top of $0.7014 overnight as the greenback climbed. Support now lies around $0.6933, and a recent 13-week trough of…
The Australian dollar dipped lower on Thursday after a disappointing jobs report caused investors to reduce their expectations of further interest rate increases, boosting the bond market. The Aussie currency slipped 0.4% to $0.6945, after previously sliding below the $0.7014 mark overnight as the greenback gained strength. The current support level for the Aussie is around $0.6933, with a recent 13-week low of $0.6904.
Australian employment data revealed a shock 39,300 drop in jobs for September, the steepest decline since early last year, surpassing analysts' forecast of a 20,000 increase. The unemployment rate remained at a five-year high of 4.7%, up from August's 4.6% figure. This news was a setback for the Reserve Bank of Australia (RBA), which had not anticipated the 4.7% rate until the end of 2027.
Market reactions included lowering the probability of a November rate hike from 32% to merely 9%, and reducing the potential December hike from 56% to 28%. The RBA has already increased interest rates by 100 basis points this year to 4.6% in an attempt to curb inflation, and they have signaled a willingness to continue tightening if necessary.
Analyst Abhijit Surya of Capital Economics stated that the worsening labor market conditions provide the RBA with more confidence that their policy settings are sufficiently restrictive. He also expects the labor market to weaken further as the full impact of policy tightening becomes apparent. While markets still anticipate 17 basis points of rate hikes by May next year, this is significantly less than the 75 basis points expected for the US Federal Reserve.
The strong US core inflation data drove up the greenback overnight, adding to credit concerns in the AI sector and putting pressure on Wall Street. The Australian 3-year bond futures rose 11 basis points to 95.190, while cash yields were 2 basis points lower than Treasury rates. Across the Tasman, the New Zealand dollar held steady at $0.5609, after reaching a 17-month low of $0.5566 the previous day.
If the support level of $0.5580 is broken, it could open the path to April 2022's low of $0.5485, and then the trough of 2020 at $0.5469.
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