Australia, NZ dollars slip on soft jobs data, bonds rally

16 Feb, 2023

SYDNEY: The Australian and New Zealand dollars slipped on Thursday as domestic jobs data surprised on the downside, while their US counterpart benefited from another round of upbeat economic news. The Aussie lost 0.4% to $0.6875, extending a 1.1% decline suffered overnight.

That left it again testing support around $0.6855/65, an important bulwark that has held since the middle of December. The kiwi dollar eased to $0.6277, having lost 0.9% overnight to as low as $0.6253. A sustained break of support around $0.6270 could see a return to its January trough of $0.6193.

The retreat came after Australian data showed employment dropped 11,500 in January, badly missing forecasts of a 20,000 increase.

The jobless rate rose to an eight-month high of 3.7%, when analysts had looked for it to hold at 3.5%. Hours worked also fell sharply in a possible sign of slowing activity.

Economists cautioned there was a lot of statistical noise in the data, but noted it was a challenge to the Reserve Bank of Australia’s (RBA) latest forecasts which had unemployment at 3.6% by June and 3.8% by year end.

Australia, NZ dollars edge back, RBA keeps hawkish stance

Futures quickly shifted to imply some chance the central bank might actually pause its rate hikes in March, even though it has strongly indicated that further tightening would be needed to curb inflation. Three-year bond futures rallied sharply to be up 3 ticks at 96.550, having been down at 96.40 before the data.

The RBA has already lifted rates by 325 basis points since last May and markets have been wagering on at least three more hikes of 25 basis points. “Leaving the pandemic aside, the last time employment fell for two consecutive months was in August/September 2016, when the RBA was cutting rates,” noted Marcel Thieliant, head of Asia-pacific economics at Capital Economics.

“But with inflation still far too high, that won’t prevent the RBA from hiking interest rates for a while yet,” he added. For the Reserve Bank of New Zealand (RBNZ), markets have been narrowing the odds that rates could rise a super-sized 75 basis points next week, even though the country has suffered from a run of natural disasters.

“The RBNZ should pause next week, as we deal with the devastating impact of Cyclone Gabrielle,” argued Jarrod Kerr, chief economist at Kiwibank.

“The RBNZ can come back in April and resume tightening if required.” “But what we think they should do is not what they will likely do. We expect to see a hike, but the discussion should be around 0 or 25bps, not 50 or 75bps.”

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