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Australia dollar dumped as weak jobs data fuels rate cut risk

The Aussie dropped to US$0.7648, pulling close to a six-year trough of US$0.7627 touched last week.

[SYDNEY] The Australian fell sharply on Thursday after a weak jobs report reinforced the case for more interest rate cuts, dragging the New Zealand dollar lower in tandem.

The Aussie dropped to US$0.7648, pulling close to a six-year trough of US$0.7627 touched last week. It has slipped nearly 2 per cent so far this week, having been knocked by uncertainty over Greece's debt arrangements and another slide in oil prices.

It skidded more than 1 per cent against the yen to be back under 92 yen, and even lost ground against a soggy euro which rallied to A$1.4775.

Australian employment unexpectedly fell by 12,200 in January, while the jobless rate spiked to a decade-high 6.4 per cent. "The Aussie dollar's reaction was not surprising as it has reacted badly to soft data in recent times," said Roger Bridges, chief global strategist for interest rates and currencies at Nikko Asset Management, seeing a likely test of US$0.7627. "(The Aussie drop) is reflecting the fact that the currency market is re-evaluating the chances of a rate cut," he added.

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Interbank futures give a 60 per cent chance of an easing to 2.00 per cent in March, from 44 per cent before the data, and are almost fully priced for a move by April.

As a result, the premium between Australian and US-2-year bond yields has shrunk to 124 basis points, the smallest since 2006 and down from 177 in January.

The New Zealand dollar fell in sympathy with the Aussie dollar. It dropped about a quarter of a cent to a low of US$0.7342 after the data.

However, the kiwi held its advantage over the Aussie, which hit a one-month low of NZ$1.0407 after the jobs data.

Domestic data showed a sharp slide in manufacturing activity to its lowest level in two years, though that sat at odds with other figures showing relatively solid activity. "We wouldn't leap to conclusions on one holiday-affected month's data, but it does question the strength of economic growth early in 2015," said Bank of New Zealand senior economist Doug Steel.

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

Australian government bond futures jumped, with the three-year bond contract up 9 ticks at 98.140. The 10-year contract added 5 ticks to 97.4950, leading to a bullish steepening of the yield curve.