SYDNEY : The Australian dollar reversed a recent rally on Thursday, as rising fears of a U.S. recession and soft local jobs data knocked the risk-sensitive currency, while the kiwi was little moved by the resignation of Prime Minister Jacinda Ardern.
The Aussie eased 0.4 per cent to 0.6910 per cent, the softest level in one week, after hitting a five-month high of $0.7064 just one session before. It now faces resistance at around 70 cents and has support at the 14-day moving average of $0.6889.
The kiwi edged 0.2 per cent lower to $0.6428, after touching a seven-month high of $0.6530. It has support at $0.6360 and did not react much to news that Prime Minister Jacinda Ardern will step down next month.
U.S. data overnight showed retail sales fell by the most in a year in December and manufacturing output recorded its biggest drop in nearly two years, fuelling fears the world’s largest economy is headed for a recession.
That drove investors back to the safe-haven dollar and bonds, with futures markets pricing in rate cuts from the Federal Reserve by the end of the year, after the Fed funds rate peaks at 4.85 per cent by June.
The Fed is widely expected to slow its rate hike in February to 25 basis points as inflation eases, after downshifting the size of increases just in December.
However, a slew of policymakers sounded hawkish overnight, signalling they would push on with more interest rate hikes, with several supporting a top policy rate of at least 5 per cent.
Local data on Thursday, which showed Australia’s employment unexpectedly fell in December, also added to the risk-off mood and weighed on the Aussie.
Three-year bond futures shot up by as much as 20 ticks to 97 to imply a yield of 3.0 per cent. It last traded at 94.97.
Local government bond yields extended the global declines. The yield on 10-year bonds fell 4 basis points to 3.404 per cent, the lowest since mid-December, while the yield on three-year notes fell 9 basis points to 3.005 per cent.
Futures imply around a 60 per cent probability for the Reserve Bank of Australia to take interest rates higher in February, but also a 40 per cent chance the RBA will pause given rates have climbed by 300 basis points since May.
(Editing by Sam Holmes)