SYDNEY: The Australian and New Zealand dollars were in a holding pattern on Friday as markets awaited the latest reading on US jobs, while pondering the possibilities for next week’s policy meeting of Australia’s central bank.
A strong reading for March payrolls, and particularly for average weekly earnings, could lift the US dollar broadly, though the market already has a huge amount of tightening priced in for the Federal Reserve.
It is also wagering the Reserve Bank of Australia (RBA) will start hiking as soon as June given that unemployment has fallen to 4% well ahead of forecasts, and core inflation for the first quarter looks likely to spike above 3%.
Futures are fully priced for a move to 0.25% in June followed by six more hikes to 1.75% by the year end.
The RBA has so far vowed to be “patient” on policy and any softening of that commitment next week would only spur speculation of an early rise.
“We think the soonest the RBA will move is June,” said ANZ’s head of Australian economics David Plank.
“It will be starting from a level that is well below neutral and, as such, we think a number of successive monthly hikes is very likely.”
Plank, however, thought the tightening cycle would be more drawn out than the market’s very aggressive pricing of 300 basis points in 18 months, which would risk tipping the economy into recession.
“We expect to see a steady tightening pace ahead, with lots of pauses, which could extend the cycle for a number of years,” he added. Bonds are already braced for the worst, with three-year yields up at 2.37% having climbed an eye-watering 87 basis points in March.
The selloff has been even worse than the one in Treasuries, with spreads on 10-year yields widening out to 46 basis points from almost zero a couple of months ago.
That shift helped keep the Aussie underpinned at $0.7485 and not far from its recent five-month top of $0.7540.
It was also holding firm at 91.59 yen after climbing 9% in March.
The kiwi dollar eased back a touch to $0.6931 having repeatedly failed to crack resistance in the $0.6990/7000 zone. Support lies at the 200-day moving average of $0.6910.