AUD Hits One-Month Low on Jobs Blow, US Inflation Scare

The Aussie was looking punch drunk at $0.7320 as the shock data added to losses of 0.7% suffered in offshore trading. The break of chart support at $0.7360 also turned the technical outlook bearish and opened the way to $0.7280/90.

The New Zealand dollar followed to hit the lowest in almost a month at $0.7058, having lost 1% overnight and breached its 200-day moving average at $0.7098.

Both had been upended when startlingly strong U.S. inflation figures sent the U.S. dollar and yields surging as markets priced in the risk of an earlier rate hike there.

In contrast, Australia’s jobs figures were far weaker than forecast with employment falling 46,300 when a rise of 50,000 was expected, and the jobless rate jumping to 5.2%.

Some of this was due to the early timing of the jobs survey which missed most of the easing in lockdown restrictions, but the higher starting point for unemployment was enough to see the market pare bets on an early hike in interest rates from the Reserve Bank of Australia (RBA).

“For the RBA, the key is that the unemployment and underemployment rates are now further away from full employment, meaning more job creation will be needed to reduce labour market spare capacity and put upwards pressure on wages growth,” said Paul Bloxham, head of Australian economics at HSBC.

“A broad-based strong wages pick-up may therefore be some time away, keeping the RBA dovish.”

That makes the third-quarter wages report due next week all the more important, with some risk it may surprise on the downside given how badly the lockdowns dislocated the labour market.

In debt markets, swaps were now fully priced for an RBA hike to 0.25% by July, rather than June. Three-year bond yields eased from their highs to 1.057%, though that followed a rise of 15 basis points overnight as Treasuries sold off.

Worries about inflation globally likewise left 10-year yields 10 basis points higher at 1.85%.

(Editing by Lincoln Feast)