Australia, NZ dollars on a losing streak as stocks buckle under higher yields

SYDNEY: The Australian and New Zealand dollars extended their losing streak on Monday, buckling alongside global equities, as a relentless rise in global bond yields fuelled inflation fears and lifted the greenback.

With oil prices back above $110 a barrel amid few signs that the Strait of Hormuz will be reopened soon, markets are pricing in a 50% chance that the Federal Reserve could hike interest rates by year-end.

Downbeat Chinese activity data also weighed on sentiment, with industrial output rising by a less-than-expected 4.1% in April and retail sales barely growing at all.

The Aussie slipped 0.3% on Monday to $0.7130 on top of a 1% tumble on Friday.

The third day of declines away from a recent four-year peak of $0.7277 puts the focus on support around $0.7102.

The kiwi dollar eased 0.2% to $0.5825, down for a sixth straight session, having already shed 1.3% on Friday. Support comes in around $0.5816.

“AUD/USD can weaken further this week and possibly test 0.7064 if the USD continues to lift,” said Joseph Capurso, head of international economics at the Commonwealth Bank of Australia.

“We expect the Australia minus US 2 year interest rate differential to shrink as market participants reassess upwards US interest rates.” Local bond yields tracked their US counterparts higher.

Australia’s three-year government bond yields rose 3 basis points to 4.768%, while ten-year yields jumped 6 basis points to 5.139%, the highest since March this year.

Investors’ focus was also on the sale of a new June 2036 Treasury green bond by the Australian government this week, with analysts expecting an issuance of around A$8-10 billion.

Investor demand has been strong for Australian debt but the sale comes at a turbulent time in global bond markets.

Australia’s central bank will release the minutes of its last policy meeting on Tuesday.

At the meeting, a majority of policymakers had voted to increase interest rates for a third time this year to 4.35%.

All eyes are on possible guidance on future moves as the Iran war drags on. Australia will also publish the monthly jobs data on Thursday, with 20,000 jobs created in April, according to a Reuters poll of economists.

The jobless rate likely held steady at 4.3%.

The still strong labour market is one reason that markets are wagering on more policy tightening from the RBA this year, with a move by August about 80% priced in.

Across the Tasman sea, the Reserve Bank of New Zealand is seen holding interest rates steady at 2.25% at the policy meeting next Wednesday, but there is a 37% probability that it may surprise with a hike.