Australian dollar cheers jobs data, New Zealand dollar holds steady

[SYDNEY] The Australian dollar jumped on Thursday after data showed the country's unemployment rate unexpectedly ticked lower and reduced market expectations of a February interest rate cut.

The Australian dollar rose 0.5 per cent to US$0.6879 after five straight sessions of losses.

Official figures on Thursday showed the unemployment rate slipped to a nine-month low of 5.1 per cent in December as more jobs were added while the participation rate held steady at 66 per cent.

Financial futures were quick to pare back bets of an interest rate cut by the Reserve Bank of Australia (RBA) in February to 20 per cent from 50 per cent before the data.

"The fall in the unemployment rate...underlines that monetary and fiscal stimulus are starting to work and reduces the pressure on the RBA to cut interest rates next month," said Marcel Thieliant, senior economist at Capital Economics.

The RBA cut interest rates three times last year to a record low 0.75 per cent and has said it will do more if needed. However, despite the improvement in the latest report the unemployment rate was still well above the 4.5 per cent level the RBA says is needed to lift wages growth and inflation.

"The RBA may still decide to cut interest rates in February because the current rate of wage growth isn't enough to meet its inflation target," Thieliant added. "But with spare capacity in the labour market starting to diminish, there is now less urgency to do so."

Across the Tasman Sea, the New Zealand dollar idled at US$0.6590 after falling for five sessions on the trot.

Concerns about the rapid spread of a flu-like coronavirus had world financial markets on the edge after the death toll in China rose to 17 though the country's response and candour so far helped calm some nerves.

"While markets have shown a sense of calmness following China's efforts on containing the coronavirus outbreak, we think the lack of a rebound in risk sensitive currencies, such as the AUD and NZD, reflects a sense of cautiousness," said NAB's forex strategist Rodrigo Catril.

"China's efforts to be transparent is a reprieve for markets, but our suspicion is that cautiousness is likely to remain a near term theme nonetheless."

Providing some support to the kiwi, Fitch Ratings affirmed New Zealand's long-term credit rating at AA and upgraded the outlook to positive, reflecting the country's sound fiscal management and declining debt.

New Zealand government bonds were little moved.

Australian government bond futures mixed, with the three-year bond contract off 4.5 ticks at 99.255. The 10-year contract was unchanged at 98.87.

REUTERS