The Australian dollar tore to 15-month peaks on Thursday after a solid jobs report fed talk the Reserve Bank will raise interest rates next month.
The dollar leapt to as high as $US0.9370, shooting past previous resistance levels of around $US0.9330 as pension funds, insurance funds and model funds piled in, traders said.
At the local close, the dollar was trading at $US0.9342, up from yesterday's close of $US0.9296. Against the yen, the dollar was at 83.96, from 83.36 yen yesterday.
"Every man and dog have been buying the Aussie," a trader at a US bank said. Over the next 24 hours, the dollar may rise again to $US0.9380 driven by option-related buying before running into resistance around $US0.9400 where option-related selling kicks in, the trader said.
Data showed Australia created a net 24,500 jobs in October, confounding forecasts for a loss of 10,000 jobs. Unemployment edged up to an expected 5.8 per cent.
It was the latest evidence Australia is bounding ahead of other major economies, adding to speculation the Reserve Bank will raise rates to 3.75 per cent in December.
Bill and bond futures dropped on bets of more imminent policy tightening. Bill futures lost 0.02 points to 95.84, and three-year bond futures dropped 0.04 points to 94.83.
The ten-year contract added 0.025 points to 94.40. As it is, Australian rates are the highest in the developed world at 3.50 per cent.
A sturdy local economy led the RBA in October to be the first of G20 central banks to raise rates after the financial crisis. If it moves again in December, it will be the first time the RBA has tightened for three straight months.
"Barring some global meltdown I think 25 basis points is almost done for December," said Adam Carr, an analyst at ICAP.
Money market rates show investors see an 86 per cent chance of a quarter-point rate rise in December, and 175 basis points of tightening over the next year.
Bets of more rate hikes flattened the implied yield curve. The spread between 10- and three-year implied yields narrowed to 43 basis points, from Wednesday's 48.5.
The Aussie's high-yield allure pushed the spread of two-year Australian yields over their US peers to a 15-month high of 396 basis points in October. The spread stood at 390 basis points on Thursday.
The spread of two-year Australian swap rates over their US cousins hit a 19-month high of 451 basis points on Wednesday. It pulled back on Thursday to 416 basis points.
