Australia, NZ dollars extend gains as kiwi jobs data dims rate cuts hopes

SYDNEY: The Australian and New Zealand dollars extended gains on Wednesday, buoyed by hopes of more China market support and a pullback in the greenback, while stronger-than-expected kiwi jobs data dimmed the prospects of early rate cuts.

The Aussie rose 0.2% at $0.6534, after climbing 0.6% overnight to move back in the familiar range of $0.6520 and $0.6625.

It has been helped by a still-hawkish Reserve Bank of Australia that retained the option to hike again even as inflation was cooling at a faster-than-expected pace.

The kiwi dollar was also 0.2% higher at $0.6110, having gained 0.7% overnight to move away from a 10-week trough of $0.6040.

Support at the 200-day moving average of $0.6086 seems to hold for now.

Data from New Zealand showed the country’s jobless rate rose to 4.0% in the fourth quarter, but was below the Reserve Bank of New Zealand’s (RBNZ) expectations of 4.2%, a result that sent the two-year swap rates to a seven-week high of 4.982%.

Markets are seeing a slim 17% chance the RBNZ could surprise with a rate hike in April, but the more likely path forward, they reckon, is that rate cuts would commerce in August.

“We still expect the first rate cut in Aug-24, but now judge there is a material risk of a delay to Nov-24,” said Nic Guesnon, an economist at UBS. He added the bank would review its interest rate outlook after RBNZ Governor Adrian Orr’s speech on Feb. 16.

Analysts at ANZ said it is appropriate for the market to ask whether the RBNZ might hike again.

Australia, NZ dollars plumb 2-1/2 month lows as rate cut prospects dim

“If next week’s speech by RBNZ Governor Orr is hawkish, markets could easily gravitate towards a hike as their base case,” they said in a note to clients.

Orr is seen as likely to sound hawkish in his speech given the topic is the changing drivers of inflation from transitory to more stubborn underlying inflation.

The Antipodean currencies also benefited from a tentative stabilisation in market sentiment about China. Hong Kong’s Hang Seng index was up for the third straight session, while the Chinese yuan gained for the second day in a row.

Australian bonds enjoyed a reprieve after recent selling, tracking their global counterparts.

Three-year government bond yield eased 6 basis points (bps) to 3.665% while 10-year yield was also down 6 bps to 4.1%.