Australia, NZ dollars get a respite, bonds get a beating

SYDNEY: The Australian and New Zealand dollars won a reprieve on Wednesday as their US counterpart ran into profit-taking and commodity prices bounced, while bonds were bludgeoned by a sharp sell off in Treasury yields.

An upbeat survey on China’s services sector added to signs of an economic pick up which could support demand for commodities.

That buoyed prices for copper, while buying from momentum funds helped lift gold to record highs.

Australia is a major exporter of resources including copper and gold.

This was enough to see the Aussie edge up to $0.6512 , after again finding support overnight near $0.6480.

A break of $0.6540 is needed to put it on firmer footing, or risk a retreat to the February trough of $0.6443.

The kiwi dollar steadied at $0.5963, helped by a solid rise in prices at the latest global dairy auction.

However, it remains uncomfortably close to a five-month low of $0.5940 hit early in the week.

Bonds took another knock as markets continued to scale back expectations for future US rate cuts.

Since January, futures have taken 100 basis points of easing out of 2025 and now see US rates ending next year at 4% rather than 3%.

Local markets have followed, with futures implying only 32 basis points of cuts this year from the Reserve Bank of Australia (RBA) compared to 40 basis points late last week.

Australia, NZ dollars struggle as US rate cut hopes fade, bonds stumble

By September next year, the market has just 75 basis points of easing priced in.

Yields on 10-year Australian bonds have climbed to 4.140%, from 3.984% late last week.

While the RBA has dropped an explicit tightening bias, it also sounds in no hurry to start easing anytime soon.

The Reserve Bank of New Zealand (RBNZ) is not projecting a first cut until well into 2025, though markets are primed for a move as early as August.

Consumer price inflation stood at 4.7% in the December quarter and far above the RBNZ’s target band of 1-3%.

Data for the first quarter is due on April 17 and signs are service sector inflation is proving sticky.

“It’s not until the September quarter that we expect inflation below 3%, and it’s not until mid-October that we see that in writing,” noted analysts at Kiwibank in a note.

“So that leaves the November meeting as the earliest date to begin delivering rate cuts.”