The Australian dollar has dropped below 88 US cents for the first time since July 2010 as the loss of almost 32,000 full-time jobs stirred talk of another interest rate cut.
At 1700 AEDT on Thursday, the Australian dollar was trading at 88.14 US cents, down more than one US cent from 89.22 US cents on Wednesday.
The currency dropped to a three-and-a-half year low of 87.96 US cents in early afternoon trade after traders reacted to official labour force data showing 31,600 full-time jobs were lost in December.
Commonwealth Bank currency strategist Joseph Capurso said the increased prospect of another Reserve Bank of Australia (RBA) interest rate cut, to the record low 2.5 per cent cash rate, stirred traders into selling the Australian dollar.
"If you keep getting numbers like you got today then the risks of an RBA rate cut are certainly going to rise," he said.
The Australian dollar tumbled by one US cent, from 88.94 US cents to below 88 US cents, within 40 minutes of news the labour market shed 22,600 jobs in December - as unemployment stayed at 5.8 per cent - when economists had been expecting the creation of 5000 new jobs.
"It was quite a large miss - a 30,000 miss - but even though it was quite a large miss, a one (US) cent move in the Aussie is quite a big reaction," he said, adding strong American retail sales data was continuing to help the US dollar.
He expected the Australian dollar to recover to 88.50 US during offshore trade, with traders taking the view that RBA would need more data before adjusting interest rates.
"The RBA isn't going to react to one number. You'll need to see a string of them before the RBA considers rate cuts."