New Zealand dollar slip after mixed jobs report, Aussie bathed in rate glows

SYDNEY: The New Zealand dollar slipped on Wednesday after a mixed jobs report reinforced the case for steady interest rates in the near-term, while the Aussie stood tall near three-year highs on a rate hike boost.

Data showed that New Zealand’s jobless rate rose to a decade high of 5.4% in the fourth quarter, slightly higher than expected.

However, employment growth rose 0.5% in the quarter as firms added to headcount, suggesting the labour market is on the mend.

The uptick in the jobless rate sent interest rate futures bouncing as the market pared the chance of any hike in the 2.25% cash rate, at least until September, when a quarter-point move is about 78% priced in.

“We see nothing in the New Zealand labour market that suggests the RBNZ should be thinking about lifting the OCR,” said analysts at Citi in a note to clients.

“There were small signs… that employers and prospective job seekers were more engaged with the economy… But there is still a large unemployment gap.”

The kiwi dollar slipped 0.1% to $0.6038, having gained 0.8% overnight to as high as $0.6064.

A strong dairy auction likely cushioned the impact from higher unemployment rate. It was swept higher overnight by the surge in its Australian cousin after the Reserve Bank of Australia reversed course on Tuesday and raised interest rates to tame resurgent inflation.

The central bank also does not expect inflation to return to the midpoint of the 2% to 3% target band by mid-2028.

That led markets to bet on another 40 basis points of tightening this year, with a May hike priced in at about 80%.

The Aussie was 0.1% higher at $0.7030, after jumping 1.1% overnight to as high as $0.7050.

That was within striking distance of a three-year top of $0.7094 hit on Thursday.

Against the low-yielding yen, the Aussie climbed 0.6% to hit a record high of 109.80 yen. UBS now expects the RBA to hike in May, bringing forward its previous forecast of a rise by August.

“Arguably, the RBA has already ‘set the bar’ very high, and it is now plausible that inflation comes in below their forecasts,” said George Tharenou, an economist at UBS.

“Overall, we still see the risk around our view is the RBA is more likely to hike rates by a cumulative 75 bps.”