Australian dollar lifted from lows by strong jobs data

The Australian dollar got a much-needed fillip on Thursday after surprisingly strong jobs data pushed back on wagers for an earlier cut in interest rates, lifting bond yields.

The figures showed a surprise drop in unemployment, hitting an eight-month low of 3.9% in November and wrong-footing analysts who had forecast a 4.2% jump in jobless claims.

Employment also climbed 35,600 in November, topping forecasts of 25,000 and extending the labour market's resilient run this year.

This might serve as a shock for the Reserve Bank of Australia (RBA), which had forecast unemployment to reach 4.3% this month, and could also lessen the case for a rate reduction as early as February.

"These data support our expectations that the RBA will keep rates on hold until at least May," said Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia.

"The RBA board will be reluctant to ease rates while underlying inflation is above target, and the labour market is operating so close to its capacity."

Swap markets swung wildly in reaction to imply around a 50% chance of a cut in February, from 68% before the jobs data was released.

Three-year bond futures (YTTc1) slid 10 ticks to 96.168, while yields on 10-year bonds AU10Y rose 4 basis points to 4.270% and away from a two-month low of 4.151%. (0#AUDIRPR)

Investors had ramped up bets on earlier cuts this week after the central bank took a notably dovish turn at its December policy meeting.

The shift helped the Aussie bounce 0.5% to $0.6403 AUDUSD, and away from a 13-month of $0.6337 hit overnight. Support lies around $0.6315 and a trough from October last year at $0.6271.

Sentiment took a knock on Wednesday when Reuters reported that Beijing was considering allowing the yuan to weaken should Washington impose higher U.S. trade tariffs next year.

The Aussie is often used as a liquid proxy for the yuan given China is Australia's single biggest export market.

The kiwi dollar edged up 0.3% to $0.5802 NZDUSD, after carving out a two-year trough at $0.5763 overnight. There is some support around $0.5744, while the next big bear target is a low from October 2022 at $0.5512.

The Reserve Bank of New Zealand has already slashed rates by 125 basis points and markets are leaning toward a further cut of 50 basis points in February. (0#NZDIRPR)

"The RBNZ are at this point in time, the most aggressive rate cutter in the G10," said Jarrod Kerr, chief economist at Kiwibank.

"Right now the rate track is showing some aggressive cutting into the first half of 2025, and this will support our view for the kiwi to track down to $0.5700 in the earliest part of the year, and from there down to $0.5500."