Australia dollar gains, bonds buckle as market guns for rate hikes

SYDNEY: The Australian dollar popped higher on Wednesday after a surprisingly strong reading on core inflation fuelled market wagers on early rate hikes and sent short-term bond yields to their highest since late 2019.

The Aussie added 0.4% to $0.7530 on the data and looked set to test the recent four-month top of $0.7546. Beyond that is the technically tempting 200-day moving average at $0.7560, while support lies at $0.7490 and $0.7454.

The New Zealand dollar lagged a little at $0.7165, but was still not far from its four-month top of $0.7219.

Yields on the cash three-year bond jumped 11 basis points to 0.907%, while the more liquid three-year future dived 18 ticks to 98.850 and lows not seen since mid-2019.

Trading in interest rate futures was patchy but were almost fully priced for a first hike in the 0.1% cash rate by July next year.

This was a direct challenge to the Reserve Bank of Australia (RBA) which has repeatedly argued that rates would not need to rise until 2024 given sluggishness in wages and inflation. That stance might be harder to maintain given Wednesday’s data showed the trimmed mean measure of core inflation jumped to 2.1% in the third quarter.