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Australia dollar rallies as strong jobs data curbs rate talk

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The Australian dollar surged on Thursday as startlingly strong jobs data led the market to scale back the risk of interest rate cuts in the short-term, pulling bond yields off historic lows.

[SYDNEY] The Australian dollar surged on Thursday as startlingly strong jobs data led the market to scale back the risk of interest rate cuts in the short-term, pulling bond yields off historic lows.

The Australian dollar leapt nearly one percent to US$0.8213, pulling away from a six-year low of US$0.8033 touched last week.

The data showed the economy created 37,400 jobs in December, versus forecasts of a small gain of 3,800, while unemployment dipped to 6.1 per cent from 6.2 per cent. "The good news is that employment is growing by almost 15,000 people per month with signs that the jobless rate has peaked," said Craig James, chief economist at CommSec. "We expect the Reserve Bank to remain on the interest rate sidelines over 2015." Australian debt futures edged modestly lower, pricing in an 8 per cent chance of a rate cut in February, from 20 per cent before the data. Yet, the market is still fully priced in for a cut by July.

Earlier in the session, ANZ Bank revised its rate outlook and forecast two 25 basis-point cuts this year to a record low of 2.00 per cent. Previously, it had foreseen no move this year.

Australian government bond futures fell, with the three-year bond contract off 6 ticks at 97.300.

The 10-year contract shed 8.5 ticks to 96.3900 in a bearish steepening of the curve. Earlier, they had hit a record high of 97.5150 after disappointing US retail sales figures sent Treasury yields sharply lower.

The New Zealand dollar held around US$0.7710, after touching an overnight high of US$0.7780. Near-term support is seen initially at the previous day's low of US$0.7690, with offers seen emerging on any foray to US$0.7800.

The Aussie rallied to a one-month high on the kiwi around NZ$1.0635, while the New Zealand currency slid to a two-month low against the yen at 90.48.

Domestic data showed a slight lift in food prices last month, but analysts still expect consumer inflation to slow for the whole fourth quarter given the slide in petrol costs.

New Zealand government bonds were firmer sending yields 3 basis points lower along the curve.

REUTERS