Australian dollar lifted by jobs jump, rate cut still in play

By Wayne Cole

SYDNEY, May 15 (Reuters) - The Australian dollar swung higher again on Thursday after a surprisingly strong reading on employment added to the case against rapid-fire rate cuts in coming months, though an easing is still widely expected for next week.

Data showed 89,000 net new jobs were created in April, way above forecasts of 20,000 and continuing a run of wild swings in the series.

The shock result was enough to push bond yields up to four-month highs and lift the Aussie 0.3% to $0.6445 AUD=D3. It had stretched as far as $0.6501 overnight before running into selling.

Support lies around $0.6360, with major resistance at the recent five-month top of $0.6515.

Crucially for wages and inflation, the labour force expanded by even more so that unemployment stayed at 4.1% as expected, showing the supply of labour was meeting strong demand.

As a result, markets were still wagering the Reserve Bank of Australia will cut its 4.10% cash rate by a quarter point at its meeting on May 20, the second easing this year. 0#AUDIRPR

Beyond that, investors have been scaling back expectations and now see around 76 basis points of easing by year-end compared to more than 100 basis points a couple of weeks ago.

"With the labour market going from strength to strength, we're more convinced than ever that the RBA will be reluctant to cut rates aggressively," said Abhijit Surya, a senior APAC economist at Capital Economics.

"We're sticking to our forecast for a terminal policy rate of 3.60%."

The kiwi dollar steadied at $0.5902 NZD=D3, after recoiling from a high of $0.5969 overnight. Support comes in at $0.5845, with resistance just above $0.6000.

There was some notable volatility on the crosses on reports Washington wanted a weaker U.S. dollar to be part of trade talks with Asian countries, which were then played down.

The local bond market has had a tough week as a selloff in Treasuries spread globally, sending 10-year yields AU10YT=RR surging 28 basis points to a peak of 4.58%. Three-year bond futures YTTc1 were down a hefty 29 ticks so far this week to 96.300.

This shift was partly due to the easing of U.S.-China trade tensions which led investors to scale back the risk of a U.S. and global recession, and thus the need for aggressive rate cuts both in the U.S. and at home.