A bumper employment report has substantially eased pressure on the RBA to deliver a cut in February, even so, the Aussie dollar may have a tough time scoring big gains, courtesy of low domestic bond yields, ANZ analysts mentioned in the weekly note.
While RBA easing is likely to have been pushed out by employment data, lack of carry from low domestic yields will hamper the AUD in the medium term.
While easing geopolitical risks and accommodative global policy have been supportive, only a globally synchronized rise in growth would lift the AUD much above current levels.
The official data released on Thursday showed Australian unemployment unexpectedly declined to 5.1% in December from the prior month's 5.2%. Employment rose by 28,900 people - almost triple estimates - while participation remained at 66%, according to Bloomberg.
Markets were expecting a dismal data as the economic sentiment had weakened in December due to wildfires.
Markets priced out prospects for an RBA rate cut in February following the jobs report. Major investment banks also pushed out rate cut forecasts to the second quarter.
Still, the AUD/USD pair may struggle to challenge and rise above the recent high of 0.7016, as the Australian government bond yields are offering significantly lesser yields than their US counterparts.
For instance, the 10-year Aussie yield is seen at 1.08% and the US 10-year yield is trading at 1.734%.
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