SYDNEY: The Australian dollar hit a hurdle on Thursday when local jobs data failed to meet high expectations, though markets are convinced interest rates will still rise by June given mounting inflationary pressures.
The Aussie was left stuck at $0.7459 and well short of its recent 10-month peak of $0.7661. Support lies around $0.7390, while resistance is expected at $0.7493.
Bulls were disappointed when data showed unemployment stayed at 4.0% in March when they had looked for a drop to a 50-year low of 3.9%. Employment missed forecasts with a rise of 17,900, though that follows months of strong gains.
The report saw investors further widen the odds on a May rate hike from the Reserve Bank of Australia (RBA). Futures are fully priced for a June rise to 0.25%, from 0.1%, and imply some chance of 0.50%.
Much will depend on the first-quarter consumer price report due on April 27 when analysts are tipping an outsized jump in core inflation above the RBA’s 2-3% target band.
“CPI will be a lot stronger than the RBA’s implied profile and we expect them to shift to an explicit hiking bias at the May Board meeting, and move in June,” said Gareth Aird, CBA’s head of Australian economics.
He, however, thinks the tightening cycle will peak at just 1.25%, while the market is wagering on 3% or more.
The Reserve Bank of New Zealand (RBNZ) has already got to 1.5% after a half-point hike on Wednesday, and futures imply the peak there could be around 4%.
Yet it was notable that the kiwi actually slipped in the wake of the hike to stand at $0.6817, far from its recent five-month high of $0.7034.
Two-year swap rates also dropped 15 basis points as investors wondered what such radical policy tightening would do to the economy.
Data out Thursday showed house prices fell sharply in March even before the latest lift in borrowing costs.
“The market reaction suggests that investors are already starting to think about the end of the tightening cycle,” said Jonas Goltermann, a senior economist at Capital Economics.
“We think higher rates will bring down house prices and lead to an economic slowdown, so we would not be surprised if expected interest rates struggle to rise much further.