Australia, NZ dollars hold gains as domestic data signal resilience

SYDNEY: The Australian and New Zealand dollars were hugging hefty gains on Friday in the wake of upbeat domestic economic data as their US counterpart came under broad pressure.

The Aussie was up at $0.6785, having jumped 1.3% overnight to a seven-week top of $0.6796. The latter is a major resistance level and a clean break would open the way to at least $0.6855.

The kiwi dollar reached $0.6310, after climbing 1.3% overnight and away from the week’s low of $0.6184.

The gains came after a soft reading on US producer prices added to speculation the Federal Reserve might almost be done hiking rates and boosted risk sentiment globally.

That contrasted with a surprisingly strong report on Australian employment for March, showing the labour market holding up well in the face of higher rates.

Markets imply around a 40% probability the Reserve Bank of Australia (RBA) will hike rates again in the next few months and, importantly, almost no chance of a cut this year. Fed fund futures are wagering on around 50 basis points (bp) of easing by the end of the year.

“The jobs data should keep the RBA vigilant on the wages and inflation front, especially service sector inflation which is proving sticky globally, and remains consistent with its tightening bias,” said RBC Capital Markets chief economist Su-Lin Ong.

Australia, NZ dollars subdued, market on tenterhooks ahead of US inflation data

“We retain a final 25bp hike in our RBA profile in May to capture these risks, although it may come later than this.” Markets are also leaning toward a quarter-point hike to 5.5% from the Reserve Bank of New Zealand (RBNZ) when it meets in May.

That is seen as the top of this cycle, with some chance of an easing at the end of the year. Migration has been supporting demand in the economy.

Data released on Friday showed arrivals were the highest ever in February, and net migration the second highest.

The RBNZ has cited migration as a source of net demand and inflation pressures potentially requiring higher interest rates, Westpac economist Michael Gordon said.

“The business community seems to be taking the opposite view at the moment, hoping that the return of migrant workers will ease labour shortages and bring wage inflation down,” he added.

“Our view remains between the two: since migrants add to both demand and supply, the net effect is broadly neutral.”