Australia, NZ dollars pause near multi-month peaks as bond selloff deepens
SYDNEY: The Australian and New Zealand dollars loitered near multi-month highs on Tuesday as a global selloff in bonds kept investors cautious, although domestic economic data offered support at the margin. Selling across global debt markets saw Australian 10-year bond yields spike 9 basis points to a five-month top of 5.166%, while 3-year futures slid 7 ticks to 95.280. Treasuries led the rout…
The Australian and New Zealand dollars lingered near multi-month peaks on Tuesday as a global bond selloff kept investors cautious, although domestic economic data provided some support. Australian 10-year bond yields surged 9 basis points to a five-month high of 5.166%, while 3-year futures slipped 7 ticks to 95.280. Treasuries led the decline due to worries about US budget deficits and debt levels.
Markets now suggest a 54% chance the Reserve Bank of Australia will raise rates by a quarter point to 4.60% at its September 29 meeting, up from just 10% a week prior. There is even a 40% probability of a further hike to 4.85%. This hawkish outlook persists despite economic data indicating the economy slowed in the second quarter.
The latest GDP report is due on Wednesday, with analysts predicting a meager 0.3% increase in the quarter, with annual growth decelerating to 1.8% from 2.5%. Despite this slowdown, core inflation remains stubbornly high at 3.6%, putting pressure on the RBA to deliver a fourth rate hike this year. HSBC's Paul Bloxham noted, "The RBA has no easy choices from here.
If the GDP growth print is weak, as we expect, the economy is getting close to stagflation already. If, instead, the GDP print shows stronger than expected growth, the RBA may be forced to lift its cash rate further, increasing the risk of pushing the economy into a recession." The Australian dollar traded at $0.7170, after finding support around $0.7150, with resistance at the recent 15-week high of $0.7208 and the May peak of $0.7277.
The New Zealand dollar held steady at $0.5916, having barely moved overnight, with support at $0.5900 and $0.5860, and resistance at the three-month top of $0.5988. While investors are confident the Reserve Bank of New Zealand will raise its official cash rate by 25 basis points to 2.75% on Wednesday, they are less certain about future hikes.
Projections from May predict rates at 2.80% for December and 3.1% by the end of next year, with markets currently pricing in 3.07% for December and 3.65% by late 2027.
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