Australia, NZ dollars gain from greenback's bond angst

SYDNEY: The Australian and New Zealand dollars held near multi-week highs on Thursday after a surprise US intervention in the Treasury market slugged the greenback, while offering some support to longer-dated debt at home.

The Aussie did take a knock after data showed employment fell 15,800 in June when analysts had looked for a gain of 15,000. The jobless rate also ticked up to a near 5-year peak of 4.5%, suggesting some loosening in the labour market.

That should be a relief to the Reserve Bank of Australia which has repeatedly warned that interest rates might have to rise again if inflation did not cool as hoped, having already hiked three times this year.

“Today’s figures suggest that the labour market is indeed softening, as the RBA had hoped to see,” said Abhijit Surya, a senior APAC economist at Capital Economics.

“To be clear, the data may not be weak enough just yet for the Board to dial back its tightening bias,” he added.

“But with the labour market continuing to cool, we doubt that the RBA will tighten policy any further despite its recent hawkish messaging.”

Markets imply only a 17% chance of a hike in the 4.35% cash rate at the RBA’s next meeting on September 29, and up to 70% for a move to 4.60% by early next year.

The Aussie eased 0.1% on the jobs data to $0.7114, having climbed 0.5% overnight and away from an intra-day low of $0.7067.

A break of $0.7129 resistance opens the way to former tops at $0.7200 and $0.7277.

The kiwi dollar hit an 11-week high at $0.5946, after jumping 1% overnight as the swing in the greenback squeezed short positions.

The next barrier is a double top at $0.5993, while major support is down around $0.5822.

The greenback took a hit after the US Treasury stunned investors by suddenly doubling the amount of longer-dated debt it can buy back at regular operations, signalling discomfort with the recent spike in yields to 19-year highs.

Analysts said the surprise step could damage investor confidence in Treasury’s fiscal management and encourage the “sell US assets” movement.

It did have a modest knock-on effect in the Australian bond market, with 10-year yields dipping to 4.989% from a top of 5.073% early in the week.