Australia Rebounds, Rising Currency, Falling Unemployment

The comeback in Australia’s and New Zealand’s currencies and a strong employment market support a rate rise by the Reserve Bank of Australia. On Thursday, the Australian and New Zealand currencies recovered as positive domestic data drove bond yields higher, driving the Aussie to low-yielding yen highs not seen since early 2018.

In another of the session’s dramatic swings, the Australian dollar was back up at $0.7308 (AUD=D3) after surging 1.3 percent overnight. The rebound brought it back from a low of $0.7165, and it now faces resistance around $0.7368.

A run boosted it out of the Japanese yen, which saw the Australian dollar jump 1.7 percent overnight to 86.68 yen (AUDJPY=), breaking over the previous high of 86.24 set in 2021. The kiwi climbed to $0.6836 (NZD=D3) after bouncing 1% overnight and falling to a low of $0.6729. It is now seeing resistance around $0.6875.

Impact on the Labor Market

Jobs increased by 77,400, greatly above expectations of 37,000. At the same time, the unemployment rate fell to a 14-year low of 4.0 percent, nearing levels not seen since the early 1970s. That is a significant achievement for the Reserve Bank of Australia (RBA), which has long aimed to reduce unemployment to below 4% to boost wage growth. “It’s an extraordinarily strong set of figures,” CBA’s Gareth Aird said, adding that there was now a clear danger the RBA might abandon its vow to be “patient” on rates at its next board meeting in April.

Markets have long expected the 0.1 percent cash rate to rise for the first time in June; however, trading in futures (0#YIB:) stopped opearting on Thursday due to technical issues at the exchange. There should be at least an increase of 1.25 percent this year, bolstered by the Federal Reserve’s bullish forecast of seven rate rises in the United States by 2022. This pushed 10-year Australian bond rates (AU10Y) to their highest level since late 2018, at 2.524 percent. New Zealand’s fourth-quarter economic growth narrowly missed predictions at 3.0 percent. However, it was still robust enough to justify further the Reserve Bank of New Zealand’s tightening policies.

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