Market News

By Carter Johnson

(Bloomberg) -- The US dollar surged after a hotter-than-expected jobs report reinforced speculation that the Federal Reserve will hold off on cutting interest rates again until the second half of the year. 

The prospect pushed up the currency against almost all of its major peers, driving Australia’s dollar to the lowest since April 2020, by promising to keep drawing cash into the US as global investors seize on the higher payouts. With Treasury yields rising after the report, the Bloomberg Dollar Spot Index climbed as much as 0.6% and held its gains late into the New York trading session. 

The Aussie dropped as much as 0.9% to 0.6140 versus the dollar and was among the biggest decliners — along with the New Zealand dollar and British pound — after employers unexpectedly accelerated the pace of hiring in December. The euro weakened to a fresh two-year low and approached the $1.02 mark. The yen was the sole gainer among the most frequently traded developed-world currencies, supported by a broader risk-off move as US equities fell and oil futures rose.

“Today is clearly all about the US with Fed rate cuts getting pushed out,” said Leah Traub, a portfolio manager and head of the currency team at Lord Abbett & Co. “Not surprised to see the dollar strengthen after the very strong prints we got this morning.”

After the US nonfarm payrolls report showed employment rising by some 256,000 in December, economists at banks including Citigroup Inc., Bank of America Corp. and Goldman Sachs Group Inc. dialed back their forecast for monetary easing from the Fed this year. Bank of America, which was previously expecting two quarter-point cuts in 2025, now doesn’t any expect any. 

In Australia, the currency lost more than 9% last year, the most since 2018, due to the widening yield gap with the US. That differential, which gives investors a strong incentive to shift money to the US, is expected to worsen in 2025 as signs of weakness in the Australian economy support the case for Reserve Bank of Australia policy easing.

Even Canada’s dollar reversed a brief advance on the session that was seen after the release of the nation’s own December jobs report topped expectations. Yields at the front-end of the Canadian government debt curve rose about 13 basis points and traders pared expectations for easing from the Bank of Canada this month, but the loonie slipped for a fourth day. 

In Japan, however, a report that central bank officials are considering raising their inflation forecast when they meet later in January — in large part due to a surge in the cost of rice and a fall in the yen — was enough to support the Japanese currency throughout the Friday trading session. 

“The level of JPY interest rates remain lower than peer countries, but it’s no longer the case that yen yields will be suppressed artificially by the central bank,” said Yusuke Miyairi, a strategist and economist at Nomura. “It can extend its rise.” 

--With assistance from Masaki Kondo.

(Updates latest market pricing, adds details on Fed pricing and comment from Lord Abbett, Nomura.)