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Australian dollar nurses losses after jobs setback, NZ ticks lower
[SYDNEY] The Australian dollar took a breather on Friday after its worst performance in five weeks following a poor employment report that fuelled the risk of further rate cuts.
The Australian dollar was sitting at US$0.7630, having slid 1.3 per cent on Thursday, the most since Sept 13. Despite the decline, the Aussie is still set to end the week mostly unchanged.
The Aussie has been resilient in recent weeks against a resurgent US dollar but recent dovish comments by the Reserve Bank of Australia in the minutes of its October policy meeting and the latest jobs data tamed its rise.
Thursday's data showed a drop of 53,000 full-time jobs and a decline in the number of people looking for work.
"Traders had pushed back any easing expectations until mid-2017, but they are now more sensitive to weak data after RBA highlighted the importance of next week's inflation in the October minutes," said Matt Simpson, senior analyst at ThinkMarkets.
All eyes are now on the consumer price print which is expected to show underlying inflation rose around 0.4 per cent for the third quarter and a steady 1.5 per cent for the year.
The market is currently pricing only an 18 per cent probability of another cut in November, which would mark the RBA's third easing this year.
Mr Simpson expects the Aussie to break below 75 US cents if inflation comes in below expectations and US Federal Reserve stays on track for a hike interest rates in December.
The New Zealand dollar was down 0.1 per cent at US$0.7182 Friday, as the greenback strengthened after the European Central Bank quashed any speculation of tapering its stimulus.
ECB President Mario Draghi left the door open to a wide range of policy options - giving markets no reason to believe the central bank was ready to talk about tapering its 1.7 trillion euro (S$2.6 trillion) asset-buying program.
The kiwi has rallied 1.4 per cent this week after consumer price figures came in higher-than-expected, suggesting inflation may have finally bottomed.
While the Reserve Bank of New Zealand is still widely expected to cut rates at its Nov 10 policy meeting, economists are now much more sceptical about cuts after that.
"We continue to see a cut in November as virtually a done deal," said BNZ Senior Market Strategist Kymberly Martin, but she added that arguments for further cuts were tenuous.
New Zealand government bonds were mixed, with yields down half a basis point at the long end but slightly higher through the middle of the curve.
Australian government bond futures were unchanged, with the three-year bond contract at 98.32 and the 10-year contract at 97.735.