SYDNEY: The Australian and New Zealand dollars were pinned down on Friday ahead of US non-farm payrolls data due later in the global day, with both currencies vulnerable to pressure from expecations for rising US interest rates.

The Aussie was hanging at $0.6418, after plunging 1.2% overnight to as low as $0.6390, within a striking distance to its recent 29-month trough of $0.6363.

It barely reacted to the warnings from the Reserve Bank of Australia (RBA) that financial stability risks are rising.

Overnight, US Federal Reserve officials reaffirmed their determination to bring down painful inflation through continued aggressive rate hikes, bolstering the safe-haven dollar and hitting risky assets.

Markets currently price a 75.9% chance of a 75 basis point increase for next month’s Federal Open Market Committee meeting, up from a 65.9% probability a day earlier.

That chance could change markedly depending on what the job figures show. Forecasts are for a rise of 250,000, with unemployment up slightly at 3.7%.

The hawkishness shown by the Reserve Bank of New Zealand helped the kiwi dollar have a better week, with a 1.2% jump.

NZ dollar extends rate rally, Australia bonds outperform

On Friday the kiwi was hovering at $0.5668, but traders said the gains could quickly evaporate and the currency could soon test its recent 2-1/2 year low of $0.5565.

Analysts say a less hawkish RBA, which has reduced the size of rate hikes, could mean further weakness in the Aussie dollar, not just against the greenback but also versus its commodity counterparts.

“If stocks turn defensive, so will the commodity currencies. We can’t see how AUD can buck any sell-off in the NZD and CAD (Canadian dollar), its counterparts with more aggressive hike outlooks,” said Philip Wee, senior FX strategist at Deutsche Bank.

Yields on Australian three-year bonds were down 20 basis points for the week so far at 3.43%, steepening the curve.

Australian 10-year bond yields have fallen 10 basis points and shrunk the spread over Treasuries to just 3 basis points, the smallest since February.

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