SYDNEY: The Australian and New Zealand dollars were both struggling on Wednesday as a jump in Treasury yields lifted their US counterpart, while mixed jobs data at home weighed on the kiwi.
The Aussie was back at $0.6922 after falling 1.5% overnight and away from a six-week top of $0.7048.
It has support around $0.6886 and $0.6860.
The kiwi dollar slipped further to $0.6235, having shed 1.2% overnight and away from its peak at $0.6352.
The retreat came as hawkish comments from US Federal Reserve officials triggered a broad rebound in the US dollar, and contrasted with a more cautious outlook from the Reserve Bank of Australia (RBA).
While the RBA did hike interest rates 50 basis points to 1.85% on Tuesday, it also acknowledged risks to the economy and emphasised rates were not on a set path.
That was enough for the market to lengthen the odds on another half-point hike in September, though upbeat data on June quarter retail sales supported the case for staying aggressive.
“We expect the RBA to hike to a terminal rate of 3.35% to contain the upside risks to inflation,” said Andrew Boak, an economist at Goldman Sachs.
“But we have lowered slightly the subjective probability of 50bp hikes in each of September to 60%, and October to 55% alongside the incrementally cautious tone of the RBA.”
Australia, NZ dollars look to keep rally alive
In New Zealand, a surprise rise in the jobless rate to 3.3% was taken dovishly by markets and saw two-year swap rates pull back to 3.70% from an early peak of 3.785%.
However, the data report also showed a further pick up in annual wage growth to 3.4%, the fastest pace since 2008, while average ordinary time hourly earnings climbed 6.4%.
As a result, markets are still leaning towards a further half-point rate hike to 3.0% from the Reserve Bank of New Zealand (RBNZ) when it next meets on Aug. 17.
“While a rising unemployment rate may surprise the RBNZ, the labour market continues to generate employment that far exceeds the maximum sustainable level,” Jarrod Kerr, chief economist at Kiwibank.
“Policy tightening is still needed as wage inflation is yet to peak and risks a persistent feedback loop into general inflation,” he added. “The risk from here is a continued tightening beyond our forecast 3.5%.”
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