The Australian dollar rose against all of its major counterparts after a report showed bigger-than-estimated growth in employment, reducing pressure on the central bank to expand monetary easing steps.
The nation’s bonds fell, with the 10-year yield rising to the highest in 10 months. The local dollar reached a one-month high against the greenback as investors pared bets on interest rate cuts by the Reserve Bank of Australia. New Zealand’s dollar traded near the weakest level this year after its central bank said the currency’s strength may prompt it to lower borrowing costs from a record low to cope with a drought.
“It’s a very strong employment number, and somewhat surprising given the challenges the Australian employment market is facing,” said Richard Grace, the Sydney-based chief foreign-exchange strategist and head of international economics at Commonwealth Bank of Australia. “It illustrates the underlying strength in the economy. The market that was primarily short the Australian dollar is now unwinding.”
The Australian dollar jumped 0.7 percent to $1.0367 at 4:33 p.m. in Sydney, after earlier touching $1.0383, the highest since Feb. 6. The Aussie gained 0.5 percent to 99.51 yen, after earlier climbing to 99.62, a level unseen since August 2008. It advanced as much as 0.8 percent to NZ$1.2683, the strongest since Dec. 28.
The New Zealand dollar was little changed at 81.81 U.S. cents from yesterday, when it touched 81.62, the lowest since Dec. 26. The currency, known as the kiwi, fell 0.2 percent to 78.54 yen.
The yield on Australia’s 10-year bonds reached 3.709 percent, the highest since April 26. The three-year rate rose to 3.175 percent, a level unseen since April 23, and the two-year yield touched 3.112 percent, the highest since April 25. Yields on all maturities were above the RBA’s key rate of 3 percent for the first time since July 2011.
The number of people employed in Australia rose by 71,500 in February from the previous month, when it increased by a revised 13,100, the statistics bureau said today in Sydney. That compared with a 10,000 increase estimated by economists in a Bloomberg News survey. The unemployment rate held at 5.4 percent.
Interest-rate swaps data compiled by Bloomberg show traders see a 7 percent chance the central bank will lower its benchmark to 2.75 percent at the next meeting on April 2. That’s down from 19 percent odds yesterday.
“The overvalued New Zealand dollar is undermining profitability,” Reserve Bank of New Zealand Governor Graeme Wheeler said in a statement released today in Wellington after leaving the benchmark rate at 2.5 percent. “We expect to keep the official cash rate unchanged through the end of the year.”
New Zealand’s two-year swap rate, a fixed payment made to receive a flowing rate, rose five basis points to 2.91 percent.
“The RBNZ has taken a swipe at the market’s pricing in of hikes for this year,” said Mike Jones, a currency strategist at Bank of New Zealand in Wellington. “Not only is the bank trying to guide the market toward a later start to its hiking cycle, but there’s a thinly veiled threat in the statement about cutting rates if the kiwi refuses to fall.”
New Zealand’s dollar has strengthened 2.6 percent in the past year, according to Bloomberg Correlation-Weighted Indexes tracking 10 developed-nation currencies. The Aussie has risen 0.4 percent over the same period.
“The New Zealand dollar represents the perfect storm of global policy friction,” said Robert Mead, Sydney-based head of portfolio management at Pacific Investment Management Co., which runs the world’s biggest bond fund. “The New Zealand dollar is too strong for exporters, yet if the RBNZ cut rates, then housing bubble issues resurface.”