The Australian dollar shot up a US cent to a new seven-month high on Thursday after a surprise jump in employment threw into doubt the need for more interest rate cuts in the next few months.
The Aussie soared as high as $US0.7563, compared to $US0.7468 before the data and a low of $US0.7333 on Wednesday. At the close, the dollar had pulled back to $US0.7519, but was still up 6% in the past seven sessions.
Australia's employment defied all expectations to rise 27,300 in April, bucking forecasts for a fall of 25,000. The jump helped to pull unemployment back down to 5.4%, from a five-year high of 5.7% in March.
"Today's figures are consistent with the Reserve Bank of Australia remaining on hold for at least a few months and will get markets thinking more that this is the low in the cash rate,' said Riki Polygenis, an economist at ANZ.
The RBA opted to hold rates steady at a record low of 3% on Tuesday, saying it preferred to wait and assess the effect of its previous 425-basis-point of easing.
Against the yen, the local dollar also struck a seven-month high of 74.63 yen, up from Wednesday's 72.49.
The Aussie was also supported by hopes the battered US financial system may be stabilising after leaked results from the US banks stress tests suggested most banks are healthier than thought.
The formal release of the results is due later Thursday.
Bond futures were hammered by the strong domestic jobs data, with investors paring the probability of any further cuts by the RBA. June bill futures lost 0.10 points to 96.84, their biggest one-day drop since March 3.
Three-year bond futures skidded 0.19 points to 96.15, the sharpest daily drop since Jan. 5. The 10-year contract lost 0.125 points to 95.105.
Australian overnight index swaps show rates are seen to steady around 3% over the next three months, before bottoming at around 2.79% in February.
Still, some analysts warned the jump in Australia's jobs creation may a one-off blip, and the labour market will deteriorate as Australia's recession deepens.
While markets are in a frenzy over talks the global economy may be stabilising, economic conditions in Australia are expected to worsen in coming months.
Among the reasons is Australia's economic cycle lags other those in other countries given its reliance on commodity exports.
"We think the strength of the employment data will prove to be short-lived. Thus in time we think this pullback in rates will prove to be a buying opportunity,'' said David Plank, an analyst at Deutsche.
As such, some analysts caution any further gains in the Aussie may be limited in the near term. The Aussie's relative strength index, at 74.7 on Thursday, show the currency is overbought. A reading above 70 indicates an asset is overbought.
"I would start to get a bit more wary if we start trading through $0.76, and towards $0.77,'' said Jonathan Cavenagh, an analyst at Westpac.
Reuters
