Australian and New Zealand Dollars Find Support

The Australian and New Zealand currencies gained some ground after experiencing losses against a strong US dollar on Wednesday. The Aussie even reached a new five-month high against the Japanese yen, which is currently struggling.

US currencies saw an uptick following June’s consumer price data, which indicated that tariffs on imported goods were increasing. This boost came as Treasury yields rose, leading investors to reassess their expectations regarding the potential for more interest rate cuts.

After a nearly 0.5% drop to $0.6508, the Australian dollar managed to recover slightly, increasing by 0.2% to $0.6529. A key support level sits at $0.6485, with an eight-month high noted at $0.6595.

The Kiwi dollar returned to $0.5960, after also dipping about 0.5% overnight, landing at $0.5939. Support levels are around $0.5926, with resistance noted at $0.6005 and $0.6043.

The Australian dollar received backing from its performance against the yen, surpassing 97.00 for the first time since mid-February. It’s now approaching resistance at 97.30.

Australia’s 10-year bond yield mirrored Treasury sales, reaching a seven-week high of 4.44%. A drop of six basis points has widened the spread to the US.

Looking ahead, Australia’s next significant obstacle will be the June job figures set to release on Thursday. The median forecast estimates a bounce of around 20,000 after a rare dip in May, maintaining an unemployment rate of 4.1% that has persisted for much of the year.

Unemployment has remained relatively stable, fluctuating between 3.9% and 4.2% since the latter half of 2023, showcasing resilience despite the broader economic slowdown.

This stability is largely why the Reserve Bank of Australia opted to hold off on rate cuts this month, choosing instead to await more inflation data. A rise in unemployment is seen as a probable reason for central banks to ease policies at the upcoming August meeting.

NAB analysts pointed out that employment surveys indicate rotations in respondents which could elevate unemployment figures in June.

They noted, “Our basic expectation is for a slight increase in unemployment, but not a drastic downturn,” in a recent memo.

The market is suggesting an 80% likelihood of a quarter-point rate cut to 3.60%, yet there’s a strong sense that this month’s decision could still be seen as a misstep.