Australia dollar hits 4-year top on risk rally, rate hike bets

SYDNEY: The Australian dollar rose to a four-year peak on Thursday, riding on a wave of investor optimism for a peace deal to bring an end to the Iran war, relatively upbeat Chinese economic data and solid jobs numbers at home.

The Aussie gained 0.3% to $0.7194, the highest since June 2022, having rallied 0.6% overnight as Wall Street closed at record highs after the Trump administration raised hopes of a diplomatic breakthrough to end the fighting in the Middle East.

That marked an impressive 5.2% gain from the $0.6834 low at the end of March when a US ultimatum to strike Iran’s power plants sparked a market meltdown.

Bulls are now eyeing $0.7283, the top from 2022.

Data showed on Thursday that Australia’s employment rose broadly in line with expectations in March, and the jobless rate stayed low at 4.3%, but a war-driven global energy shock could test the labour market’s resilience soon.

Still, the solid result kept markets wagering on a near 70% probability for a third rate rise this year in May, with all eyes on the first quarter inflation data due on April 29 that could seal the case for a move.

“The March Labour Force Survey, in isolation, should not prevent the RBA from hiking policy rates. However, the downside risks to growth are rising,” said analysts at Citi in a note.

“Central banks are in a tough position, but the RBA will likely look to curb inflation expectations and hike again by 25bps in May and June for a terminal rate of 4.6%.”

Swaps are also pricing in a total tightening of 55 basis points from the Reserve Bank of Australia this year. Separately, data showed China’s economy expanded at a solid annual rate 5% in the first quarter thanks to strong exports and policy support.

That kept its industrial sector buoyant, which suggests still-strong demand for Australia’s resources exports.

The New Zealand dollar edged up 0.1% to hit a fresh one-month top of $0.5920, after climbing 0.2% overnight. It faces resistance around $0.5964, the high from March.

Markets imply around a 33% chance that the Reserve Bank of New Zealand will lift its 2.25% cash rate by 25 basis points in May, while a hike by July is more or less fully priced in.