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AUD bounces on upbeat jobs news, NZD trails

[SYDNEY] The Australian dollar jumped on Thursday as local jobs data blew past all expectations and helped offset strength in its US counterpart, though there was still scant sign of the inflationary pressure that might push up interest rates.

The Australian dollar hopped higher to US$0.8010, from an early US$0.7973, recovering some of the losses suffered Wednesday when the US dollar rallied broadly.

The bounce came after data showed employment leaped by 54,200 in August, far above forecasts of a 15,000 gain and the biggest rise since October 2015.

Yet the jobless rate stayed at 5.6 per cent as more people went looking for work, lifting the participation rate to its highest since 2012.

Indeed, with the labour force growing almost as fast as employment, that suggests there will be limited upside pressure on wages or inflation.

As a result, interbank futures eased only modestly on the numbers to imply around a 30 per cent chance of a hike in the Reserve Bank of Australia's (RBA) 1.5 per cent cash rate in the next six months.

"This is a stellar employment report, although considerable slack remains," said Su Lin Ong, head of Australian strategy at RBC Capital Markets.

"The global evidence suggests a much weaker link between employment growth/unemployment rate and wages growth/inflation than in the past," she added.

"We expect the RBA to remain in watch-and-wait mode, with the cash rate on hold for the foreseeable future."

The Aussie's gains were also tempered by some mixed Chinese data as retail sales and industrial production both rose by less than market forecasts.

Still, China's output of steel did jump to a record peak for August suggesting solid demand for iron ore, Australia's single biggest export earner.

The New Zealand dollar got a slight tailwind from the Aussie and nudged up to US$0.7256, having shed 0.7 per cent on Wednesday to US$0.7221 when the US dollar climbed.

Dealers were wary ahead of the latest opinion poll on country's neck-and-neck election due at 0600 GMT.

The lead has been swinging back and for between the ruling National Party and the opposition Labour Party, generating plenty of political uncertainty ahead of the vote on Sept 23.

If the poll puts Labour ahead the kiwi was likely to lurch lower, while a lead for the National's could generate a modest bounce.

New Zealand government bonds were under pressure following another session of selling in the US Treasury market. Yields were up 2 to 8 basis points along the curve.

Australian government bond futures suffered likewise, with the three-year contract down 4.5 ticks at 97.925. The 10-year contract lost 5.25 ticks to 97.2775, while cash yields climbed to 2.738 per cent.