Aussie Soars as Commodity Currencies Punish Dollar Before Fed

  • Currency slid 1.5% in prior three days as commodities tumbled
  • Risk of RBA rate cut reduced, supporting Aussie, CBA says

Australia’s dollar soared after government data showed employers unexpectedly added jobs last month, reducing the prospects that the Reserve Bank will ease monetary policy next year.

The Aussie climbed against all of its 16 major peers and three-year government bond yields rose to the highest this year after the statistics bureau reported employers added 71,400 positions last month, compared with the median forecast for a 10,000 decline in a Bloomberg survey of economists. The unemployment rate unexpectedly dropped to 5.8 percent.

“This is consistent with the RBA’s view that Australia’s unemployment rate may have peaked and further reduces the risk of more RBA rate cuts, supporting a higher Australian dollar in the near term,” said Elias Haddad, a currency strategist at Commonwealth Bank of Australia in Sydney.

Australia’s dollar rose 0.8 percent to 72.84 U.S. cents as of 6:50 a.m. in Tokyo on Thursday, after surging as much as 1.5 percent. It had declined 1.5 percent in the past three trading sessions as the price of iron ore, the nation’s biggest export, tumbled and China’s trade data intensified concern over the scope of its economy’s weakness.

Policy Working

The RBA next meets on Feb. 2 after keeping the cash rate unchanged at a record low at its past seven meetings. Policy makers reduced the benchmark by 2.75 percentage points since October 2011.

“The rate kept low at 2 percent is having its effects,” said Jun Kato, a senior fund manager in Tokyo at Shinkin Asset Management. “It looks like the domestic economy is strengthening, even if China is weighing, with a shift to industries away from resource-related areas.”

Australia’s three-year government bond yields increased eight basis points to 2.18 percent, the steepest jump since Nov. 12. They touched 2.23 percent, a level last seen on Dec. 29.

New Zealand’s dollar jumped as much as 1.7 percent after the central bank cut its benchmark interest rate to a record and said it expects that level should be low enough to meet its inflation target. 

Reserve Bank Governor Graeme Wheeler’s fourth rate cut of 2015 means he has fully unwound last year’s tightening. The kiwi was at 67.41 U.S. cents, paring its gain to 0.3 percent. 

Sensitive Dollar

Bloomberg’s Dollar Spot Index was little changed at 1,221.45 from Wednesday, when it slid 0.8 percent. The greenback was at 121.64 yen after dropping 1.2 percent to 121.44 the previous day. It was at $1.0995 per euro from $1.1025.

Recent turbulence in commodity markets and currencies linked to them has driven volatility higher.

“Markets will be faced with heightened volatility going into the Fed’s gathering amid risk aversion and a lack of fresh news,” said Yasuhiro Kaizaki, vice president for global markets at Sumitomo Mitsui Trust Bank Ltd. in New York. “Currencies will be looking for stability in stocks or commodities.”

A JPMorgan Chase & Co. index of global exchange-rate fluctuations completed its biggest two-day gain since Nov. 24 on Wednesday, climbing to 9.43 percent, after the Bloomberg Commodity Index advanced for the first day this week. The greenback had its deepest slump in more than three months against the yen, paring a two-month advance that was driven by speculation the Federal Reserve will raise rates for the first time in almost a decade at its Dec. 15-16 meeting.

“I’m not sure if the dollar is just undergoing an adjustment or that markets are suggesting the dollar’s turnaround after the fact from the Fed is out,” Shinkin’s Kato said. “The dollar stands in quite a sensitive phase.”

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