The Australian dollar shot past a series of resistance levels after a spectacular domestic jobs report set off a flurry of stop-loss buying and stoked talk of an interest rate rise by December.
At 1700 AEST, the Australian dollar was trading at $US0.8739/41, up 3.02 per cent from Wednesday’s close of $US0.8482/84. From 0700 AEST, the local unit traded between $US0.8623 and $US0.8759.
The Australian dollar jumped as far as $0.8749 after data showed Australia's economy added 45,900 jobs in June, overwhelming forecasts for a rise of about 15,000 and bringing the jobless rate to a lower-than-expected at 5.1 per cent.
Within minutes after the data was released, the Aussie dollar burst through resistance at $0.8663, $0.8721 and $0.8730 to jump over half a cent. The Aussie soared against the yen to 77.33, a rise of 5 per cent in three sessions.
One trader said the rise was accelerated by stop-loss buying above $0.8730, the 50 per cent Fibonacci level of the Aussie dollar's fall from April's peak of $0.9389 to May's low of $0.8066 on the daily chart.
By early evening, the Aussie dollar was holding at $0.8745, up over 4 cents from a low of $0.8317 seen on Tuesday, though some thought a pause was in the offing.
"I don't see the Aussie dollar going up further for now," said Tony Morriss, an analyst at ANZ. "Anything above $0.8800 would be a sell."
Morriss said the data showed it was highly unlikely the Reserve Bank of Australia (RBA) would cut interest rates this year, which the market had speculated on in the past two weeks.
Instead, he said speculation on whether inflationary risk would force the RBA to raise rates again should flatten the implied yield curve to 30 basis points, from 47 now.
Yields on government bonds and interest rate swaps jumped as investors speculated that falling unemployment may lift wages, fuelling price pressures and paving the way for a rate rise.
Three-year government bond yields rose to 4.555 per cent, well above a one-year low of 4.285 hit this week.
Three-year swap rates jumped to 5.03 per cent, also a good way off a near one-year low of 4.87 struck last week.
Three-month bills dropped 0.12 points to 95.11, and three-year bond futures lost 0.13 points to 95.35.
Ten-year futures dropped 0.07 points to 94.89.
The spread between 10- and three-year cash yields narrowed to 56.1 basis points, leaving the cash yield curve at its flattest in almost two months.
"These numbers will certainly concern the RBA," said Helen Kevans, an economist at JPMorgan, about the jobs figures.
"Further evidence of building wage pressure will add to an already worrisome inflation outlook, with headline inflation likely to remain above the RBA's 2 to 3 per cent target range this year and next," she said.
The rates market was recognising that risk. Interbank futures dropped to reflect a 32 per cent chance of rates rising to 4.75 per cent by November, from 4.5 per cent now.
Reuters, with AAP