Australian and New Zealand Dollars Experience a Dip as Treasury Yields Rise, Job Data Fails to Affect Rate Expectations
The Australian and New Zealand dollars have slightly retreated from their multi-week highs due to an increase in Treasury yields, strengthening their US counterpart. Despite upbeat jobs data from Australia, it failed to significantly impact interest rate expectations in the country.
The Australian dollar slipped 0.3% to $0.6488, stepping back from its three-month high of $0.6542 recorded in the previous session. Nevertheless, it still remains 2.1% higher for the week so far, bringing it closer to the 200-day moving average at $0.6597.
On the other hand, the New Zealand dollar fell to $0.5997, having reached as high as $0.6054 overnight, only a tick away from its October peak of $0.6055.
The Australian dollar received support from strong demand against the yen, which led to a nine-year high of 98.60 yen. This spike followed a 2% increase in just three sessions.
The release of data showing an employment rise of 55,000 in October in Australia did not trigger much reaction from the market. However, it was balanced out by an increase in unemployment to 3.7%.
Despite record migration helping to meet labor demand, there remains uncertainty in the markets regarding a near-term rate hike by the Reserve Bank of Australia (RBA). This uncertainty arises following the recent rise to 4.35% last week.
Diana Mousina, deputy chief economist at AMP Capital, stated that the recent figures are not sufficient evidence to support a rate hike in December. She believes that the next possibility for a rate hike would be in February after the release of quarterly inflation data. However, the expected weaker macroeconomic environment may allow the central bank to maintain interest rates without further changes.
According to futures trading, there is only a 7% chance of another rate hike in December, and opinions are split on whether the tightening cycle has come to an end.
In contrast, the market indicates almost no likelihood of a policy easing next year, which stands in stark contrast to the anticipated 90 basis points of rate cuts in the United States and European Union.
The futures market is currently pricing in almost no chance of another hike from the Reserve Bank of New Zealand during its upcoming meeting on November 29. This is due to a series of recent soft data on inflation, jobs, and consumer spending.
Interestingly, analysts expect the first rate cut to occur as early as August next year, with approximately 48 basis points of easing forecasted for 2024.
In summary, the Australian and New Zealand dollars have experienced a dip as Treasury yields rise. Although positive employment data was released in Australia, it did not greatly impact expectations for interest rates. This has led to uncertainty in both currencies as traders evaluate the future direction of monetary policy.
