The Australian and New Zealand dollars were pressured against the US dollar on Monday after strong US jobs data bolstered expectations for a US interest rate rise before year-end. The gathering evidence for the Federal Reserve to start tightening policy comes at a time when the higher-yielding commodity currencies are facing more downside risk from possible rate cuts at home.
The Reserve Bank of Australia held back from a rate cut last week, but a struggling domestic economy has investors wagering on an easing before year-end. In New Zealand - which has been hit by a decline in export prices for its dairy products - such a move could occur as early as at Thursday's policy review, some analysts predict. "Emerging market currencies have been hit quite strongly on the jobs data, and commodity currencies have been hit as well," said Tim Kelleher, head of institutional FX sales at ASB Bank.
"On top of that with the RBNZ on Thursday, the market's going to be cautious on the kiwi." In subdued trade in Australia where markets were closed for a public holiday, the Aussie traded around $0.7625 after easing to $0.7598 on Friday. The Aussie has reversed a rally to $0.7819 hit last week after the RBA held off from cutting interest rates.
The kiwi traded around $0.7050, wallowing near a five-year low of $0.7025 hit late last week after the strong payrolls report. Losses against the greenback pulled the kiwi down to 74.09 versus a currency basket, its lowest since September 2013. Domestic data showing a fall in wholesale trade during the first quarter fuelled more speculation that growth in New Zealand's outperforming economy is slowing due in part to a slump in global prices for dairy products, the country's biggest export earner. Signs that demand may ease in the face of persistently low inflation risks have prompted markets to price a 43 percent chance that the Reserve Bank of New Zealand may cut interest rates by 25 basis points at this week's meeting.
Kelleher at ASB said a rate cut this week may push the kiwi through support at $0.7000 and down towards $0.6700. But he added that a barrage of bets against the currency on rate cut speculation has pushed short positioning to an all-time high, raising the risk of a correction towards $0.7400 if the RBNZ stands pat. New Zealand government bonds fell, tracking losses in US Treasuries and other overseas bonds markets, pushing yield as much as 3 basis points along the curve.
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