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The Australian dollar extended a rare bounce on Thursday as surprisingly strong jobs data

The latest blip came after data showed Australian employment jumped 44,000 in August, far above forecasts of a 15,000 gain. Annual jobs growth of 2.5 per cent even outpaced the 1.6 per cent rate of the United States.

Unemployment, however, held at 5.3 per cent as more people went looking for work, a trend that has so far restrained wage growth and inflation.

“These were a beautiful set of numbers, but ample slack remains in the labour market,” said Su-Lin Ong, head of fixed income strategy at RBC Capital Markets.

“Accordingly, we need persistent above trend growth and employment generation to continue to erode this slack,” she added. “The odds are this will happen, but only slowly, keeping the RBA firmly camped on the sidelines.”

As a result the strong report did almost nothing to change market pricing for the Reserve Bank of Australia (RBA), which implies little chance of a rate hike until late 2020, if then.

It also proved a limited drag on Australian government bonds, with three-year futures off 3.5 ticks at 97.940. The 10-year bond contract eased 1.75 ticks to 97.3950.

Sentiment had been soothed overnight on news the Trump administration had invited Chinese officials to restart trade talks, stirring speculation further tariffs might be avoided.

There were also hopes for progress on a NAFTA deal between the United states and Canada, though signs on that were mixed.

Washington wants to agree on the text of a new deal by Oct. 1, but Canadian officials say more work is needed.

The trade news was enough to help the New Zealand dollar firm to $0.6558 and off a low of $0.6502, which had been its weakest since early 2016. “The U.S. dollar fell sharply after some positive news on trade, boosting the AUD and NZD. The U.S. and Canada were reportedly nearing agreement, and the U.S. and China may start fresh talks,” said Imre Speizer, strategist at Westpac Bank, in a research note.

“It’s too early to conclude this is the short-position squeeze we have been waiting for, but we will watch it closely.”
New Zealand government bonds eased, sending yields 3 basis points higher towards the long end of the curve.

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