The Australian and New Zealand dollars rallied on Thursday after upbeat domestic economic data badly wrongfooted bears betting on weakness and lengthened the odds on lower interest rates in both countries.
The Aussie AUD=D3 hit a three-week peak of $0.7169, having been as low as $0.7057 on Wednesday when speculators shorted the currency in anticipation of weak job numbers.
The song was much the same for the kiwi, which shot to the highest in seven weeks at $0.6935 NZD=D3 and well away from Wednesday's trough at $0.6828.
The rally began overnight when the U.S. Federal Reserve proved decidedly more dovish than markets had bet on by removing both of its planned rate hikes for this year.
That left it with just one more hike pencilled in for 2020 and investors doubted that would ever happen, instead pricing in a real chance of an easing by the end of this year.
In contrast, markets had to row back on aggressive easing expectations for Australia after data showed the jobless rate took a surprising dip to 4.9 percent in February. The last time it was lower than that was in late 2008.
That will be a relief for the Reserve Bank of Australia (RBA) which has been counting on the labour market to stay resilient in the face of seemingly slower growth in the rest of the economy.
"These data buy time for the RBA, which is trying to reconcile the deterioration in growth in the second half of 2018 with a strong labour market," said NAB economist Kaixin Owyong.
"These data count towards downplaying the slowdown in growth, although we think that the RBA will remain on alert as it tries to get a better read on the state of the economy."
NAB still thinks the labour market will eventually cave and the central bank will have to cut rates, likely in both July and November.
The futures market scaled back the probability of a quarter-point rate cut by August to 80 percent
0#YIB: , from almost 100 percent before the data.In New Zealand, data showed economic growth picked up to 0.6 percent in the December quarter, led by strength in household consumption, construction and business investment.
Speculators had wagered on a weaker number and were squeezed out of their short NZ dollar positions.
"There's been a lot of doom and gloom offshore, so a pleasant surprise pushed the Kiwi dollar higher," said Jarrod Kerr, chief economist at Kiwi Bank.
"The market is convinced the next move here will be a rate cut, sometime in the next year. And today, we've seen a lot to help complicate this picture."
In the debt market, yields
0#NZTSY= were still 3 to 4 basis points lower thanks to the major rally in global bonds triggered by the Fed overnight.Australian government bond futures turned mixed, with the three-year bond contract YTTc1 off 1 tick at 98.550. The 10-year contract YTCc1 was still up 3 ticks at 98.0900.
