SYDNEY: The Australian dollar got an added boost from upbeat jobs data on Thursday after benefiting from a relief rally in global risk assets, while its New Zealand cousin suffered a setback from a surprisingly soft report on economic growth.
The Aussie was enjoying its reprieve at $0.7020, having bounced 1.9% overnight and away from a one-month low of $0.6850. Resistance now lies around $0.7035.
The kiwi dollar faded a little to $0.6292, after adding 1.1% overnight only to run into resistance at $0.6313. That remains uncomfortably close to a two-year trough of $0.6197 hit earlier in the week.
The Aussie was underpinned by data showing employment jumped 60,600 in May to blow away forecasts of a 25,000 gain.
The unemployment rate held at a 50-year low of 3.9%, and would have fallen further if not for a sharp rise in participation to all-time highs.
Details of the report were also strong reinforcing market wagers the Reserve Bank of Australia (RBA) will deliver another half-point rate hike in July to reach 1.35%.
“There is nothing in this report to dissuade the RBA from raising rates by another 50bps in July and August,” said Tapas Strickland, a director of economics at NAB.
Australian dollar finds sliver of support as yields surge
“The labour market is clearly very tight, both drawing in people from outside of the labour force, as well as utilising existing employees more.” Futures are pricing in several hikes of 50 basis points to take rates as far as 3.75% by Christmas, levels not seen in a decade.
The jobs data dealt another heavy blow to an already battered bond market and three-year yields shot up 16 basis points to 3.77%.
Yields on 10-year bonds climbed to 4.19%, taking the spread over US Treasuries out to its widest since early 2016 at 81 basis points.
Over in New Zealand, the story was somewhat different as data showed the economy unexpectedly contracted 0.2% in the first quarter as a huge fall in exports dwarfed strength in domestic demand.
That saw two-year swap rates dip 9 basis points to 4.45%, but markets remain confident the Reserve Bank of New Zealand will keep hiking rates at pace.
“The RBNZ has made clear that they’re firmly fixated on inflation as public enemy no.1,” said Jarrod Kerr, chief economist at Kiwibank.
“But we suspect the RBNZ will underdeliver on rate hikes, and house price falls and the negative wealth effect will ultimately limit the peak to 3.5%, not 4%.”
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