Aussie up, kiwi steadies

The Australian dollar inched ahead on Thursday as mixed jobs data offered no new incentive to wager on a rate cut in the near term, while bonds rallied as US markets narrowed the odds on an aggressive easing from the Federal Reserve. The Aussie was 0.3% firmer on the day at $0.7029, having bounced from support around $0.6996, but remained short of the week's high at $0.7045.
The New Zealand dollar held at $0.6736, just off a three-month top of $0.6745. Futures eased to imply just a 10% chance of a reduction in the 1% cash rate in August and a 32% probability of a move in September. But an easing to 0.75% is almost fully priced by December, with a 40% chance of reaching 0.5% sometime next year. Australian 10-year yields followed with a fall to 1.351%, down from 1.486% at the start of the week. Three-year bond futures added 2 ticks to 99.095, up from a recent 99.010 low.
Yields on 10-year New Zealand government bonds dropped to 1.610%, from a top of 1.685% on Monday. Australian data showed employment rose a surprisingly small 500 in June, but all the weakness was in part-time work with full-time jobs rising 21,100. The unemployment rate held at 5.2% for a third month running, underlining the challenge the Reserve Bank of Australia (RBA) has in reaching its new goal of 4.5%.
Yet, with the RBA already having cut rates in June and July the data was not considered weak enough to add to the case for another easing in the short term. "The data gives the RBA room to stay on hold in August," said NAB economist Kaixin Owyong. "It will likely prefer to see what impact recent cash rate cuts and income tax cuts have on the economy."
"In our view though, momentum in the labour market is slowing, with the risk that the unemployment rate continues to tick higher. We continue to forecast another rate cut to 0.75% in November." The RBA is far from alone in having to ease policy, with South Korea's central bank on Thursday becoming just the latest to cut rates.
Markets also turned decidedly more dovish on the US outlook this week, driving Treasury yields sharply lower. Futures now imply a 35% chance of the Fed cutting by 50 basis points later this month, up from almost zero early in July. Longer-dated bonds rallied particularly hard with yields on 30-year debt dropping 8 basis points overnight, the third largest daily decline so far this year.