Aussie dives to near 11-year low

The Australian dollar slid to a near 11-year trough on Thursday as data showing a surprisingly sharp rise in unemployment added to the case for further cuts in interest rates at a time when markets were already skittish over the coronavirus.

The Aussie delved as deep as $0.6633, lows not seen since March 2009, having sunk from an early $0.6695 top and a $0.6733 peak at the start of the week. It was last down 0.6% on the day at $0.6637.

Charts showed scant technical support until lows around $0.6280 touched in early 2009.

The New Zealand dollar fared little better, dropping to a three-month trough at $0.6354. The next major shelf of support is around $0.6323.

The Aussie came unstuck when data showed unemployment rose to 5.3% in January, from 5.1% the month before, topping forecasts and unravelling two months of declines.

That overshadowed a 13,500 increase in net employment and a jump of 46,200 in full-time workers, underlining the spare capacity remaining in the labour market even after months of continuous job gains.

The Reserve Bank of Australia (RBA) has repeatedly said it would reconsider cutting rates again should the jobless rate trend higher in a meaningful way, although it would much prefer a period of stable policy.

Futures still imply only a 26% chance of an April move to 0.5%, but that was up from 18% on Wednesday. A cut in May is priced at 44% and June at 60%.

Australian government bonds also caught a bid, with the three-year bond contract up 4 ticks at 99.320. The 10-year contract rose 3.5 ticks to 99.0000, implying an yield of just 1%.

The competing concerns saw the Aussie initially jump as high as 74.74 on a broadly weaker yen overnight, before sliding back to 73.60 yen on Thursday.

"The leading indicators of employment have softened and the activity data continues to paint the picture of soft private demand," said Gareth Aird, a senior economist at CBA.

"We remain comfortable with our view that the RBA will resume policy easing in 2020. April looks the most likely month for the next 25 bps rate cut."

Analysts said sentiment had also been spooked by a run of alarmingly weak Japanese economic data which raised the risk of recession.

Japan is Australia's second-biggest export market and a downturn would only add to the economic risks posed by the coronavirus in China, its single biggest market.

Read Comments