SYDNEY: The Australian and New Zealand dollars huddled near two-year lows on Friday ahead of a crucial US jobs report that could reignite a selloff in Treasuries and pressure local bond markets.
Median forecasts are for US nonfarm payrolls to rise 160,000 in December with unemployment holding at 4.2%.
Anything stronger could see 10-year Treasury yields spike to 13-month peaks and lift the US dollar in the process.
The Aussie was feeling the heat at $0.6190, having hit a fresh trough of $0.6173 overnight. That left it 0.3% lower for the week and well short of a $0.6302 top reached on Monday.
The failure of that rally leaves the currency vulnerable to a break of its 2022 low of $0.6170 and a return to levels not seen since the 2020 pandemic.
The kiwi dollar edged down to $0.5593 after also touching a fresh low at $0.5572 overnight.
Again, a failure to sustain a bounce to $0.5607 made early in the week leaves risks to the downside and its 2022 nadir of $0.5512.
Bond markets have also had a tough week as Australian 10-year yields rose 11 basis points to 4.503%, while New Zealand yields added 12 basis points to 4.663%.
Both have not suffered quite as much as Treasuries, however, such that Australian 10-year notes now pay 18 basis points less than US debt compared to 20 basis points more a couple of months ago.
The local market was aided by a soft reading on November core inflation this week that led many analysts to nudge down forecasts for inflation in the whole fourth quarter.
That, in turn, saw investors revise up the chance of a February cut in the Reserve Bank of Australia’s 4.35% cash rate.
The probability of a quarter-point easing is now put around 70%, compared to 50% at the start of the week.
The easing cycle is expected to be rather shallow, with rates bottoming around 3.60% by the end of the year.
Australia, NZ dollars Struggle near two-year lows, data on help
Investors have for some time been wagering the Reserve Bank of New Zealand will chop its 4.25% cash rate by an outsized 50 basis points when it meets in February.
With the economy deep in recession, markets foresee further easing to around 3.0% by the end of 2025. Rates in the United States are seen dipping only modestly further to 3.90% this year. Reuters