Australian dollar stumbles to 1-month low on poor jobs, China data

[SYDNEY] The Australian dollar skidded to a one-month low on Thursday after a worryingly weak reading on employment re-ignited speculation about another cut in interest rates, or perhaps even something more drastic.

Adding insult to injury were a disappointing set of Chinese economic data, with retail sales and industrial output missing market forecasts.

The Aussie shed 0.5 per cent to US$0.6802, taking it further away from the recent three-month top at US$0.6930 and testing support just under US$0.6800.

Upending the currency were figures showing a net 19,000 jobs were lost in October, confounding forecasts of a 15,000 gain and the largest drop since September 2016.

That nudged the jobless rate up to 5.3 per cent, so reversing September's promising dip to 5.2 per cent.

Investors reacted by narrowing the odds on another rate cut from the Reserve Bank of Australia (RBA), with December now seen as a 24 per cent chance of a quarter-point move to 0.5 per cent.

An easing in February was seen as a 62 per cent chance, rising all the way to 92 per cent by June.

"We do not think the RBA will rush and cut the cash rate in December in reaction to one negative print, but it will sustain the easing bias," said CBA economist Belinda Allen.

"The debate on unconventional monetary policy will only increase," she added. "If adopted, it is likely to involve forward guidance and quantitative easing, though a conventional fiscal response would be the better policy choice."

The conservative government of Prime Minister Scott Morrison has so far brushed aside calls for stimulus, preferring to stick with a political promise to push the budget back into surplus.

Bonds rallied on the data, with yields on three-year paper falling 7 basis points to 0.75 per cent.

The three-year bond futures contract climbed 7 ticks to 99.240, while the 10-year contract firmed 8 ticks to 98.8050.

The renewed pressure for an RBA rate cut was in marked contrast to the Reserve Bank of New Zealand (RBNZ), which had dashed hopes for an easing at its policy meeting on Wednesday.

RBNZ Deputy Governor Geoff Bascand on Thursday told Reuters they were biding their time to gauge the effect of past cuts, though they might move if needed in February.

The divergence saw the Aussie sink to an 11-week low of NZ$1.0634, while keeping the kiwi supported on the US dollar at US$0.6398.

New Zealand yields on two-year bonds were holding up at 1.065 per cent after surging almost 17 basis points on Wednesday.

REUTERS