SYDNEY: The Australian and New Zealand dollars were trying to steady on Monday after a super-strong payrolls report boosted their US counterpart across the board, while slugging bond markets globally.
The Aussie did regain a little ground to $0.6926, having lost 0.8% on Friday to reach as low as $0.6870 before finding support. Resistance now lies at $0.6987.
The kiwi dollar also firmed a touch to $0.6241, after shedding 0.9% on Friday to as low as $0.6215. It faces resistance around $0.6250 and $0.6315.
The US job stunner saw markets lean heavily toward another hike of 75 basis points from the Federal Reserve in September, which in turn led investors to narrow the odds on more aggressive tightening at home.
Swaps now show an evens chance of a half point hike to 2.35% from the Reserve Bank of Australia (RBA) next month, while December bill futures slid 10 ticks to 96.800 implying a rate of 3.20%. Yields on three-year notes popped up to 2.993%, having been as low as 2.733% at one stage last week.
The market is fully priced for the Reserve Bank of New Zealand (RBNZ) to go 50 basis points to 3.0% next week, with even a chance of 75 basis points.
The RBNZ’s third quarter survey of inflation expectations out on Monday suggested the bank’s early start on hiking and its hawkish rhetoric was working to anchor the outlook. Expectations for one year ahead eased only a fraction to 4.86%, but the two-year outlook dropped to 3.07% from 3.29% in the second quarter.
Australian dollars suffers setback; mixed jobs data roil NZ dollars
That will be a relief for policymakers, though likely not enough to forestall more hikes given the strength of recent wage figures.
“Policy tightening is still needed as wage inflation is yet to peak and risks a persistent feedback loop into general inflation,” said Jarrod Kerr, chief economist at Kiwibank, who expects another 50bp next week.
“The risk from here is a continued tightening beyond our forecast 3.5%,” he added. “The RBNZ is likely to signal a move to 4% and potentially higher.”
Two-year swap rates climbed 11 basis points to 3.875% in the wake of the US jobs report, well above 10-year bond yields at 3.33%.
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