SYDNEY, May 5 (Reuters) – The Australian and New Zealand dollars bounced back on Wednesday as surprising strength in local economic data showed that the United States is not the only country where upward pressure on interest rates is increasing.
The Aussie edged up to $ 0.7734, after touching a three-week low of $ 0.7675 overnight as the US dollar got a broad boost from talk of future US interest rate hikes.
The kiwi dollar strengthened to $ 0.7173 and moved away from the $ 0.7116 trough, which now marks major chart support.
That was helped by data showing New Zealand’s unemployment rate unexpectedly fell to 4.7% in the March quarter, when analysts expected it to stay at 4.9%.
“Today’s report is a good read, and confirms the strength of the Kiwi economy,” said Jarrod Kerr, chief economist at Kiwibank. “The economic damage from the Covid lockdown is much less than anyone expected six months ago.”
Kerr doubts this alone will shift the Reserve Bank of New Zealand (RBNZ) away from its dovish policy outlook, but the economy is clearly outperforming better than expected.
“The tighter the labor market, the more pressure is on wage growth. And wage inflation is not as easily stopped by the Reserve Bank as inflation is caused by temporary supply disruptions, “he added.
Investors responded by increasing the yield on the 10-year bond to 1.74%, the highest since mid-April.
In Australia, the surprise came in the agreement to build new homes that ruled out forecasts for a 17.4% rise in March, confirming a big boom is underway.
Approvals to build new homes rose a staggering 61% on the previous year at a record peak, while the value of commercial buildings also hit an all-time peak.
The building boom is likely to have a big impact on jobs and spending and should make the Reserve Bank of Australia (RBA) more confident in the economy after raising its forecasts on Tuesday.
“The RBA managed to surprise us, raising all the major forecasts more than we expected,” said Prashant Newnaha, senior interest rates strategist for Asia-Pacific at TD Securities.
He now doubts the RBA will shift its target bond for yield curve control from the current April 2024 line to the November 2024 issue.
But it is likely to announce the third tranche of A $ 100 billion bond purchases in July, if only because the Fed is not expected to mark a decline in purchases by then. (Edited by Sam Holmes)