Australia, NZ dollars bend before dollar, bonds take a beating
- The Aussie was flat at $0.6973, having slipped 0.4% overnight and away from resistance around $0.7026
SYDNEY: The Australian and New Zealand dollars bowed before a broadly stronger greenback on Friday as a further surge in oil prices stoked speculation about rate rises globally and slugged bond markets.
The Aussie was flat at $0.6973, having slipped 0.4% overnight and away from resistance around $0.7026.
Immediate support is at $0.6960, with more at $0.6913. It still held weekly gains on the yen and euro as Japan and Europe are major energy importers, while Australia is a net exporter of liquefied natural gas and coal.
The kiwi dollar steadied at $0.5781, after losing 0.8% overnight.
That left it well off the week’s top of $0.5873 and threatening support at $0.5744.
The rise in the greenback erased gains the Aussie had made on Thursday when domestic jobs data beat forecasts and added to the oil-driven pressure for a further hike in interest rates.
Markets shifted to imply a 40% chance the Reserve Bank of Australia could lift the 4.35% cash rate at its next meeting in August, up from just 10% a couple of weeks ago.
“We see upside risk to oil over coming months and this does lift the risk for inflation,” said Belinda Allen, head of Australian economics at CBA.
“At the same time, higher oil and petrol prices pose risks for growth.”
“The risk sits with the need for another rate hike, but given the uncertainty over the path of the war from here, we see the RBA sitting on the sidelines to watch the impact.”
Markets are almost fully priced for a move to 4.60% by November and are even implying a one-in-three chance of rates topping out at 4.85%.
The hawkish turn carried further pain for bonds, as 10-year yields climbed to a two-month high at 5.067%, leaving them up a steep 16 basis points for the week.
Three-year bond futures were down 20 ticks for the week so far, the largest drop since mid-March.
Over in New Zealand, the key two-year swap rate was up 18 basis points for the week so far to the highest since late 2024 at 3.7525%.
The Reserve Bank of New Zealand raised rates to 2.5% earlier this month and markets now expect to see 3.0% by December, and 3.5% by the middle of next year.