Australian dollar holds firm as yields hit six-month highs
- The next target is the May top of $0.7277 and then peaks from 2022 at $0.72825 and $0.7661
SYDNEY: The Australian dollar paused near another fresh top on Thursday as investors ramped up wagers on a near-term hike in interest rates, lifting short-term bond yields to their highest in almost six months.
A string of hawkish comments from the Reserve Bank of Australia has combined with the inflationary pulse from Brent oil above $101 a barrel to see markets price in an 80% chance of a rate rise later this month.
Bond markets reacted by lifting 3-year yields 8 basis points to 4.905%, threatening a March spike top at 4.905%.
A break of that would take yields to levels not seen since mid-2011 and risk a run toward a bear target around 5.30%.
“RBA commentary suggests something has shifted, pushing the board back into risk management mode,” wrote analysts at JPMorgan in a note. “We suspect that the duration of the oil shock is becoming a problem, more so than its intensity.”
“It would take a meaningful surprise on the next labour market data to offset this and so we add a 25bp hike for the September meeting, to 4.60%.”
The labour report for August is due on September 24, ahead of the RBA meeting on September 29. Markets are even priced for a further move to 4.85% by early next year, which would be the highest cash rate since 2008.
All this hawkishness kept the Aussie firm at $0.7220, having hit a four-month high of $0.7238 overnight.
The next target is the May top of $0.7277 and then peaks from 2022 at $0.72825 and $0.7661.
It also made a 13-year high on the New Zealand dollar at NZ$1.2375, while the euro touched a 21-month low at A$1.6073 overnight.
The kiwi dollar bounced 0.2% to $0.5847, having fallen 0.3% overnight in a fourth session of losses.
Support lies at $0.5802, with resistance around $0.5902.
The kiwi has been under pressure since the Reserve Bank of
New Zealand last week projected fewer rate hikes ahead than investors had bet on.
Markets have since pared back the chance of a rise in the 2.75% cash rate in October to 28%, though a move in December is still priced as near certain.
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