May 14, 2020 / 3:39 AM / 19 days ago

Australian dollar absorbs jobs blow, bond demand a buffer

SYDNEY, May 14 (Reuters) - The Australian dollar slipped on Thursday after data showed the largest-ever drop in jobs in April as much of the economy was locked down to tackle the coronavirus, though dogged demand for the country’s bonds limited the losses.

Employment fell by a staggering 594,300 in April, above already grim forecasts of a 575,000 drop. Investors were surprised by the 6.2% rise in the jobless rate, when analysts had tipped 8.3%, but only because of quirks in the way unemployment is classified.

Without those, the jobless rate would have hit 9.6%.

Analysts noted that total hours worked dived a record 9% in the month, pointing to a steep fall in economic output.

“This measure captures the massive loss of jobs, stood-down workers and the cut-back in hours,” said NAB economist Kaixin Owyong. “Total hours worked best captures the unprecedented economic shock to households.”

“This hit will limit the bounce-back in spending and activity as the economy recovers, even with the dramatic increase in government assistance.”

The only saving grace was that markets had fully anticipated an horrific number, limiting the sticker shock. As a result the Aussie slipped a relatively slight 0.2% to $0.6439 and never threatened key chart support around $0.6378.

Australia has had more success than many countries in containing the virus, so much so that states are loosening restrictions on shopping, eating out and travelling to work, which could at least help stabilise the economy.

That leaves it at the mercy of global trends.

“A ‘second wave’ of the coronavirus, weakening the world economy and commodity prices, and a potential deterioration of U.S.-China trade relations in the run-up to the U.S. election remain downside risks to the Aussie,” said CBA forex analyst Joseph Capurso.

“But if the health and financial crises are over, AUD/USD may already be past its low point several months sooner than our existing forecasts suggest,” he added.

The bond market remained upbeat following a very strong sale of new debt on Wednesday, with the 10-year future rising 5 ticks to 99.1100.

The record sale of A$19 billion ($12.26 billion) in a 2030 bond drew a A$53.5 billion mountain of bids. Of the total sold, 38% went to banks and almost 37% to fund managers, with nearly 20% taken by hedge funds pointing to solid interest from offshore.

Across the Tasman, the New Zealand dollar was nursing a few bruises at $0.5986 after shedding 1.3% on Wednesday when the Reserve Bank of New Zealand (RBNZ) flagged the risk of negative interest rates.

$1 = 1.5492 Australian dollars Editing by Sherry Jacob-Phillips

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