SYDNEY: The Australian and New Zealand dollars took a beating on Wednesday and bonds were hammered after US inflation surprised on the high side, upending market expectations for early interest rate cuts.
The Aussie was stumbling at $0.6453, the lowest level in three months, having tumbled 1.2% overnight to break key support at $0.6469.
It has found a tentative floor at $0.6452, a level that if broken would open the door to November’s low of $0.6340 and October’s trough of $0.6271.
The kiwi dollar was floundering at $0.6054 after falling 1.2% overnight to just a touch above the floor of its recent range of $0.6040 to $0.61.
Overnight, a hotter-than-expected US inflation report, including a re-acceleration in the core measure, forced traders to push out the likely timing of the first rate cut from the Federal Reserve to June, rather than May.
Futures also took a quarter-point out of the total expected easing this year to 87 basis points.
That compared with the Fed’s own projection of three rate cuts this year.
“Today’s US core services print, notably when married with the recent rise in consumer confidence and solid labour market readings has some even questioning if rate cuts come in 2024 at all,” said Chris Weston, head of research at Pepperstone.
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“Further, when the two big macro worries are resurging inflation and a future recession, the fears of the former concern have hit a sour note for markets.”
Traders have also pared back easing expectations Down Under.
Markets are still confident the Reserve Bank of Australia is done tightening but only one rate cut is now expected this year.
For the Reserve Bank of New Zealand, traders see a real risk it could hike rates again in May before delivering one cut in 2024.
Australian three-year bond futures fell 12 ticks to 96.13, just above a major support level of 96.12.
Ten-year bond futures slumped 11 ticks to 95.70. In New Zealand, data showed food prices - which make up 19% of the consumer price index - rose 0.9% in January, picking up from a 0.4% gain the previous month.
Two-year New Zealand swap rates shot up 6.5 basis points to 5.24%, just a touch below its 2-1/2 month high of 5.245% hit on Monday.
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