SYDNEY: The Australian dollar slipped on Thursday after soft jobs data reinforced market bets of a rate pause next month, while the kiwi was marginally higher as New Zealand’s budget showed government spending could add to inflationary pressures.
The Aussie dipped to a session low of $0.6630, before finding support and stabilising at $0.6648, down 0.2% on the day.
It eked out a rise of 0.1% overnight. Australia employment unexpectedly dipped in April, following two months of outsized gains, while the jobless rate also ticked up to a three-month high, in a sign that the red-hot labour market might be cooling.
Coupled with still tame wages growth, markets doubled down on bets for a pause from the Reserve Bank of Australia next month, although they still see some risk of a move in August or September.
RBA Governor Phillip Lowe “is likely to have another rate rise up his sleeve in the next few months given that the employment figures still remain very strong, albeit having fallen marginally in April,” said Russel Chesler, head of investments and capital markets at VanEck.
The kiwi was up 0.2% to $0.6254, after rising 0.3% overnight to as high as $0.6273. It faces minor resistance at the 14-day moving average of $0.6264 and has support at 21-day average of $0.6227.
The ruling Labour government on Thursday announced a worse-than-forecast budget deficit as a lower tax take, higher inflation and a slowing economy hit its coffers.
It also expanded its bond programme to fund deficits, an increase that is larger than markets had expected.
Australia dollar smarts from US debt ceiling worries; kiwi holds up better
“The fiscal forecasts are more expansionary than we had anticipated. As a result, the Budget will add to inflation pressures in the short term,” said analysts at Westpac.
“They (the RBNZ) have long been highlighting the risk of a larger boost to spending.
That risk has now materialised, supporting our view that the RBNZ will now likely be looking at a higher OCR peak than the 5.5% it had previously projected.“
ANZ also see some stimulatory impact from the budget and have now priced in one additional hike in July to 5.75%, on top of a 25-basis-point increase next week.
Two-year swap rates jumped 11 basis points (bps) to a one-month high of 5.2350%, bringing the total gain in the past three sessions to 30 bps.