The Australian dollar sunk to new three-and-a-half-year lows overnight on the back of weaker-than-expected employment data.
Early Friday, the Australian dollar was trading at 88.15 US cents, up from 88.14 cents on Thursday.
The Australian dollar dipped as low as 87.77 US cents overnight – its lowest point since July 2010 – after December labour force figures showed the economy lost 68,000 full-time jobs in 2013.
The monthly unemployment rate remained steady at 5.8 per cent but only because the participation rate – the proportion of the population with a job, looking for one or who are ready to start work – fell to 64.6 per cent.
The figures raised fears of further rate cuts by the Reserve Bank of Australia, BK Asset Management managing director Boris Schlossberg said.
“The Australian unemployment rate is deceptively low. If the participation rate had remained at the 2011 average of 65.5 per cent, the unemployment rate would have actually risen to 7.1 per cent,” Schlossberg said.
“The dour labour data suggest that the RBA may now consider another rate cut – perhaps as soon as the next meeting, in February.
“The news sent the Aussie tumbling through the key support at 88.50 US cents and well below the 88 cent figure where it finally found some buyers at 87.70 US cents.
“Any rebound is likely to be short lived in nature as the fundamental case for the Aussie has unequivocally turned bearish after Thursday’s labour report.”
The New Zealand dollar climbed to a new eight-year high against its trans-Tasman counterpart.
The kiwi rose as high as 94.80 Australian cents and was trading at 94.72 cents at 8am from 94.45 cents on Thursday.
The local currency increased to 83.44 US cents from 83.29 cents.
In contrast to the Australian scenario, New Zealand’s central bank is poised to start hiking interest rates as the local economy accelerates and inflation pressures start to creep in.
“New Zealand is expected to be the first western country to start raising interest rates – it’s going to happen but it’s tough for the Reserve Bank with the kiwi and TWI up here,” said Michael Johnston, senior dealer at HiFX.
New Zealand’s December quarter consumer price index is due next week, and Reserve Bank governor Graeme Wheeler will review monetary policy on January 30.
In December, Wheeler said economic growth and increased consumer spending were offsetting the high currency, which had previously caused him to back away from higher rates.
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