Australian dollar firms as jobs boom stokes rate risk

THE Australian dollar extended its gains on Thursday after a blockbuster jobs report added to the case for another rise in interest rates and shoved bond yields higher.

The Aussie firmed 0.4 per cent to US$0.6713, having rallied 0.6 per cent overnight in the wake of a benign US inflation report.

Resistance comes in at US$0.6722 and US$0.6745, with support at US$0.6620.

The kiwi dollar held at US$0.6211, after gaining 0.4 per cent overnight. Support lies at US$0.6184 and US$0.6160, with resistance around US$0.6242.

The Australian labour report showed 53,000 net new jobs were created in March, more than double forecasts of 20,000 and a second straight month of strong gains.

Full-time employment also surged by 72,200, while the unemployment rate stayed near five-decade lows of 3.5 per cent as more people joined the labour force.

Such unalloyed strength suggested the Reserve Bank of Australia (RBA) might choose to resume its tightening campaign after pausing this month, even though markets are still pricing it as an outside chance.

“There are very few signs of weakness in these data and little to suggest the labour market is slackening in a meaningful way,” said Sean Langcake, head of macroeconomic forecasting for BIS Oxford Economics.

“While the labour market continues to track in such a strong position, there will continue to be upward pressure on wage growth,” Langcake said.

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“This affirms our expectation that the Q1 CPI print will be a strong one, and we expect to see the RBA raising rates again in May.”

The consumer price report for the first quarter is due on April 26 and investors had been looking for a marked moderation in inflation from a 30-year high of 7.8 per cent.

Interest rates futures dipped on the data but still imply only around an 18 per cent chance of a quarter-point rise in the RBA’s 3.6 per cent cash rate in May. Rates are seen at 3.50 per cent by the end of the year, compared to 3.47 per cent before the data.

Bonds showed more of a reaction as three-year futures slipped 7 ticks to 97.060, while 10-year yields were up 4 basis points at 3.30 per cent. REUTERS