SYDNEY - The Australian dollar skidded to a fresh four-month trough on Thursday after data showed an unwelcome rise in the jobless rate and narrowed the odds for a cut in interest rates, perhaps as early as June.
The Aussie was hunched at $0.6914, having fallen as much as a third of a U.S. cent to $0.6893, the lowest since the flash crash of early January.
The last time the Aussie spent more than a day at these depths was in early 2016 when it got as far as $0.6827.
The damage was done when data showed Australia's jobless rate rose to 5.2% in April, above forecasts of 5.1% and up from 4.9% just two months previously.
The rise came even though the economy generated a strong 28,400 jobs in the month, with more people seeking work. That was a clear sign there was plenty of spare capacity in the labour market which would allow the economy to grow quicker.
Just this month, the Reserve Bank of Australia (RBA) emphasised that the labour market needed to keep tightening if wages and inflation were to rise as hoped.
"Job growth needs to be fast enough to push the unemployment rate lower to keep the RBA from cutting rates," said Kerry Craig, global market strategist at JPMorgan Asset Management.
"According to the RBA's own estimates a 5% unemployment rate won't see the inflation rate return to the target range and prevent a cut," he added. "A few months of data will be need to discern a trend, leaving the RBA on track for an August cut."
The market was wagering it might come even earlier, with futures now showing a 50-50 chance for a quarter-point easing in June 0#YIB: . A move to 1.25% was put at a 90% probability for July and was more than fully priced by August.
A further cut to 1% was also implied by December. Yields on three-year bonds AU3YT=RR were already down at all-time lows of 1.204 percent having fallen 60 basis points so far this year.
Three-year bond futures YTTc1 firmed 4 ticks to 98.810, while the 10-year contract YTCc1 added 3.5 ticks to 98.3300.
The jobs data will prove a setback for Australia's governing Liberal-National coalition, which is heading into this weekend's general election claiming to be a sound manager of the economy. Opinion polls show the opposition Labor Party is the favourite to win.
Across the Tasman, the New Zealand dollar slipped 0.15% to $0.6553 and ever-closer to last week's six-month low of $0.6525.
The Reserve Bank of New Zealand (RBNZ) cut its rates to 1.5 percent earlier this month and markets imply around a two-in-three chance of a further easing by year end.
Two-year bond yields were down at 1.398%, a long way from where they started the year at 1.715%.
((Wayne.Cole@thomsonreuters.com; 612 9321 8162; Reuters Messaging: email@example.com))