The Australian dollar struggled under the weight of worldwide economic anxiety on Thursday even as domestic data showed jobs jumped past expectations in July and lessened the risk of a rate cut in the very near term. The figures helped the Aussie edge up to $0.6780, from an early low of $0.6747, but left it short of Wednesday's $0.6809 high after a 0.7% drop overnight.
The New Zealand dollar was sidelined at $0.6439, having eased 0.3% overnight to as low as $0.6422. Both currencies had been pressured by concerns the United states, and with it the rest of the world, was heading for recession as Treasury yields sank to record lows. The yield on 30-year bonds broke under 2% for the first time on Thursday and briefly traded beneath the three-month bill rate, an inversion that has foretold recessions in the past.
The Aussie won some respite when domestic data showed 41,100 new jobs were added in July, well above forecasts of 14,000, with full-time work up a healthy 34,500. That was enough to make investors pare the probability of a rate cut from the Reserve Bank of Australia (RBA) in September to 18%, from 38% earlier.
However, the data also showed unemployment held at 5.2% in July as more people went looking for work, implying that wage growth and inflation would stay subdued.
"Spare capacity in the market is much larger than previously thought," said Sarah Hunter, chief economist at BIS Oxford Economics. "Labour supply has easily responded to the strong growth in demand from firms over the last two years, and there are no signs yet of a general shortage of workers," she added. "We continue to expect the RBA to cut rates again in Q4 to provide further support to the economy."
Futures still imply an 84% chance of a quarter point rate cut to 0.75% in October, with November seen better than 100%. RBA Deputy Governor Guy Debelle also highlighted the risks from the trade war in a speech earlier on Thursday, warning it could trigger a self-fulfilling global downturn. That outlook, coupled with the global rush to safe havens, kept Australian bonds well bid.
Yields on the 10-year note hit another historic low of 0.88%, having dived a staggering 60 basis points (bps) in just the past month. New Zealand's 10-year bond yields dropped to a record trough of 1.033%, to be down 65 bps from this time last month.