SYDNEY/WELLINGTON - The Australian dollar was caught in choppy trading on Thursday after a closely-watched jobs report led the market to trim already-low expectations for further interest rate cuts, while the New Zealand dollar remained stuck below recent highs.
The Aussie briefly jumped a third of a cent to $0.9473 (S$1.185) after data showed an unexpected dip in the jobless rate to 5.6 percent, from a four-year high of 5.8 percent.
However, the drop in unemployment was due to a fall in the number of people actively looking for work, while the headline number showed a lower-than-expected rise of 9,100 jobs.
Later, the currency faded back to $0.9435, near where it started the session.
"The AUD has been whipped in all directions, given the conflicting strong/weak headlines," said Annette Beacher, head of Asia Pacific research for TD Securities in Singapore.
Yet, Thursday's data provided an excuse for debt markets to push back expectations of further easing by the Reserve Bank of Australia (RBA).
Interbank futures 0#YIB: fell, giving a one-in-five chance of a cut in December to a record low of 2.25 percent, from one-in-three before the report.
Swap markets are now pricing in 14 basis points (bps) of tightening on a one-year horizon, from 4 bps on Wednesday.
Matthew Johnson, a rate strategist at UBS, said he was surprised the Aussie dollar wasn't stronger following the jobs data. <
"It will be very hard for the RBA to explain a cut when unemployment is going lower," he said, seeing interest rates on hold.
Traders cited option bids for the Aussie near $0.9415.
Resistance was found at the session peak of $0.9473.
The New Zealand dollar edged a touch lower to $0.8281, from $0.8304 in early trade, but remained anchored near the $0.8300 region.
The kiwi has found its footing after retreating from a 4- 1/2-month high of $0.8445 hit last month, aided by an improving New Zealand economy and expectations for a rise in interest rates next year.
For now, many in the market expect the kiwi to remain hemmed between technical support at $0.8262, the 23.6 percent retracement of its August-September rally, and $0.8350, where resistance is building given the kiwi's failure to break above that level earlier this month.
Investors are unwilling to take on big positions in the higher-yielding kiwi given uncertainties about how long the US government shutdown will last, and whether Washington will be able to raise its debt ceiling next week.
Analysts have warned that failure for US lawmakers to agree on additional borrowing could trigger a sell-off in the US dollar as it would raise the possibility Washington may default on its debts, which could boost the Antipodean currencies.
New Zealand government bonds were softer, sending yields 5 basis points higher along the curve.
Australian government bond futures fell with the three-year bond contract down 5 ticks at 976.880. The 10-year contract lost 3.5 ticks to 95.920.