Aussie surges after strong jobs data; China's yuan jumps

China left its lending benchmarks unchanged on Thursday, as expected

SINGAPORE (Reuters) – The Australian dollar surged on Thursday after the country's employment data came in way above expectations, while the yuan marched higher after China moved to stem its currency's decline by relaxing a cross-border financing rule.

Data out on Thursday showed that Australia's employment handily beat expectations for a second straight month in June as net employment rose by 32,600 in June from May, exceeding market forecasts for an increase of 15,000.

That pushed the Aussie up and it spiked more than 0.9 per cent to an intra-day high of $0.6834, taking the New Zealand dollar along with it.

The kiwi gained 0.57pc to $0.6299, with both Antipodean currencies on track to reverse four straight sessions of losses.

"The Australian dollar has spiked higher across the board after the economy delivered another rate-hike defying report," said Matt Simpson, senior market analyst at City Index.

"Ultimately, it's another strong set of employment figures which keeps the pressure on a data-dependant (Reserve Bank of Australia) to potentially hike rates in August."

In Asia, China left its lending benchmarks unchanged on Thursday, as expected, though its central bank and foreign exchange regulator said they had raised the cross-border macro prudential adjustment ratio for corporates and financial institutions.

The latter move was meant to make it easier for domestic firms to raise funds from overseas markets, which comes at a time when the Chinese yuan is facing downward pressure as the country's economic recovery falters.

Allowing more capital inflows could alleviate the pressure on the currency.

The yuan jumped in the onshore and offshore markets following the move, with both strengthening more than 0.5pc against the US dollar.

The offshore yuan last bought 7.1901 per dollar, while the onshore yuan strengthened past 7.18 per dollar to a session-high of 7.1620.

The hike indicated the People's Bank of China's policy guidance to "defend the (yuan) and curb the excessive forex volatility alongside the strong CNY fixing bias", said Ken Cheung, chief Asian FX strategist at Mizuho Bank.

RATES OUTLOOK

In the broader currency market, sterling was nursing deep losses after a sharp fall in the previous session following Britain's inflation data, which undershot market expectations.

The British pound was last 0.15pc higher at $1.2958, after having slid more than 0.7pc on Wednesday.

That inflation reading pulled back market expectations of further aggressive rate hikes from the Bank of England (BoE), with the prospect of Britain's rates rising above 6pc now likely off the table.

Traders had at one point expected interest rates to rise as high as 6.5pc.

"The market I think is a bit more reasonable now with its expectations for rate hikes by the BoE. We always thought 150 (basis) points of hikes was just too much," said Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia (CBA)

The euro rose 0.24pc to $1.1227, as investors looked to next week's European Central Bank (ECB) policy meeting for further clarity on the rate outlook.

ECB policymakers have in recent days taken a more dovish tone, with governing council member Yannis Stournaras the latest to guide that future rate rises past July's likely 25 basis points increase remains up in the air.

The US dollar index last stood at 100.03, regaining some lost ground after last week's more than 2pc fall in a knee-jerk reaction to US inflation data that came in cooler than expected.

"We thought (the fall) was too strong, so it looks like the dollar has regained some of those losses," said CBA's Capurso.

The Japanese yen rose 0.3pc to 139.23 per dollar.