Australia, NZ dollars find cold comfort in hot data after Fed shift

SYDNEY: The Australian and New Zealand dollars struggled to regain some ground on Thursday as surprisingly strong domestic data softened only a little of the blow from a hawkish turn in US monetary policy.

The Aussie edged up to $0.7626, from a nine-week low of $0.7598, but was well short of Wednesday's top of $0.7715. The break of chart support at $0.7645 was a bearish development and risked a retreat to the 200-day moving average at $0.7552.

The kiwi dollar fared somewhat better with a bounce to $0.7088, from a nine-week trough of $0.7043, but again was off Wednesday's $0.7155 high.

It was also perilously close to its 200-day moving average at $0.7039 and a break could easily see it re-test the 2021 low of $0.6944.

Both currencies had slid when the US Federal Reserve surprised by projecting possible rate hikes in 2023 and confirmed it was discussing whether to taper bond buying.

The shift sent Treasury yields higher and lifted the US dollar across the board.

There was some relief in data showing New Zealand's economy rebounded by a strong 1.6% in the first quarter driven by rising household consumption and construction.

That was well above the Reserve Bank of New Zealand's (RBNZ) forecast of a 0.6% fall and supported its projection for a rate hike as early as the third quarter of 2022.

"Today's strong report, we may see expectations shift toward an earlier lift-off rates than the Reserve Bank has scheduled," said Jarrod Kerr, chief economist at Kiwibank.

"If data continues to paint a healthy picture of the economy, our May '22 hike start date looks increasingly likely."

That hit bonds hard, with 10-year yields jumping 15 basis points to 1.81%.

Australia also reported upbeat data as employment surged 115,200 in May, almost four times the market forecast. The jobless rate fell to 5.1%, when analysts had expected a steady outcome of 5.5%.

Such strength will challenge the Reserve Bank of Australia's (RBA) position that a rate hike will not come until 2024, a stance that was reaffirmed by RBA Governor Philip Lowe earlier on Thursday.

"The labour market remains well ahead of the RBA's expectations and wage pressures are likely to emerge sooner than they expect," said Sean Langcake, a senior economist at BIS Oxford Economics.

"Notwithstanding Governor Lowe's relatively dovish comments today, we expect the RBA will need to bring forward their plans for a rate hike into 2023."