SYDNEY: The Aussie and kiwi dollars teetered close to key support levels on Wednesday as investors reduced bets on higher interest rates following a second rate pause in Australia and an uptick in New Zealand jobless rate.
The Aussie was flat at $0.6614, just a touch above a major support level of 66 cents.
It slid 1.6% overnight to a four-week trough of $0.6602 after the Reserve Bank of Australia delivered its second rate pause, fuelling speculation that the tightening cycle might be already over.
A break of 66 cents would open the way to revisit this year’s low of $0.6459.
The kiwi dollar lost 0.4% to $0.6128, also a whisker away from a key level of $0.6121, as dairy prices fell at a global auction and data showed that the jobless rate in New Zealand unexpectedly ticked up to 3.6% from 3.5%.
Markets slightly scaled back the chance of another rate rise and sent the benchmark two-year interest rate swaps down 4 basis points to 5.4380%.
In Australia, three major banks out of four - ANZ, CBA and Westpac - now forecast an extended pause by the RBA.
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More economists, including at Barrenjoey and UBS, reckon the cash rate has peaked at 4.1%.
“The balance of risks now favours the prospect that the RBA is now on hold,” said Bill Evans, chief economist at Westpac who has tipped a rate hike on Tuesday.
“The concept of being pre-emptive seems to have been replaced by a ‘data dependent’ approach to this issue as well.”
Futures imply there is an even chance that the RBA could deliver one last hike in the fourth quarter of the year, with rate cuts commencing in the second half of 2024.
As the rate hike cycle draws to a close, markets are no longer pricing in the risk of a recession, with a key part of the yield curve between ten-year and three-year government bonds steepening markedly in the past week.
The spread stands at a positive 22 basis points, pulling further away from negative territory hit just a month ago.
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