Australia’s dollar headed for its strongest three-day winning streak since 2013 as surging jobs growth prompted traders to pare bets the central bank will cut interest rates.
The Aussie advanced against all of its 16 major peers, gaining most versus the U.S. and Canadian currencies, as swaps traders reduced the odds of the Reserve Bank lowering rates next month to 62 percent, from 73 percent Wednesday, according to data compiled by Bloomberg. A government report showed Australian employers added more than twice as many positions as analysts forecast in March, driving down the unemployment rate.
The data has “helped Aussie higher, in that, on the margins, it diminishes slightly the risk that the RBA might cut in its May meeting,” said Keng Goh, a foreign-exchange strategist at Royal Bank of Canada in London. “But the overwhelming consensus is still for a cut, which we are expecting too.”
Australia’s dollar rose 1.3 percent to 77.82 U.S. cents at 7:43 a.m. New York time, after reaching 77.98 cents, the highest since March 27. It has climbed 2.5 percent since April 13, heading for the biggest advance over a three-day winning run since September 2013. The Bloomberg Dollar Spot Index declined 0.4 percent for a third-straight drop.
The Aussie will weaken to 72 U.S. cents by year-end, RBC’s Goh said. He predicts another rate cut from the RBA in the fourth quarter of the year.
Australia’s unemployment rate fell to 6.1 percent in March, compared with the median estimate among economists surveyed by Bloomberg for 6.3 percent.
The “big upside surprise” in the labor data makes it “quite difficult now to build the strong case” for a rate reduction in May, National Australia Bank Ltd. economists Ivan Colhoun and David de Garis wrote in a client note. They will revisit that forecast next week, following the release of inflation data and minutes of the central bank’s most recent meeting, according to the report.
Australia’s dollar had weakened to an almost six-year low earlier this month amid bets on more easing from the RBA. The nation’s inflation rate, as measured by the consumer price index, was at 0.2 percent in the first quarter, matching the level in the last three months of 2014, according to the median estimate of economists in a Bloomberg survey.
“The job numbers could reduce the pressure for the RBA to cut rates next month,” and that is pushing the Aussie higher, said Roy Teo, a strategist at ABN Amro Group NV in Singapore.
The dollar declined as Treasuries rose. The U.S. currency weakened 0.4 percent to $1.0721 per euro and slipped 0.1 percent to 119.03 yen. The Treasury 10-year yield fell two basis points, or 0.02 percentage point, to 1.88 percent.
“U.S. yields are really key here,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “If we see 10’s close below 1.86-1.87 percent, that would risk additional lightening of dollar longs as they look increasingly fatigued,” he said, referring to bets an asset’s price will rise.