Aussie Falters On Jobs Data But Kiwi Calm After Arden’s Resignation

On Thursday, the Australian dollar was able to reverse a recent rally, as the risk-sensitive currency took a beating because of soft local jobs data and increasing fears of a recession in the United States.

Meanwhile, the announcement of the resignation of Jacinda Ardern as the Prime Minister of the country had little impact on the kiwi.

The movements

There was a 0.4% drop in the Aussie, which brought it down to $0.6910, the softest the currency has been in about a week.

Just a session earlier, the currency had been able to reach a high of five months at $0.7064. The risk-sensitive currency is now facing resistance at about 70 cents with $0.6889 being the moving average of 14 days.

As for the Kiwi, it experienced a drop of 0.2%, which brought it down to $0.6428, after it had climbed to reach a high of seven months at $0.6530.

The currency appeared to have support at the $0.6360 level and was a little moved after the news that Prime Minister Jacinda Arden would step down from her role in the next month.

The factors

Overnight data from the United States showed that there had been a decline in retail sales in December by the most and the biggest decline had been recorded in manufacturing output in almost two years.

This gave rise to fears that the largest economy in the world was heading toward an economic recession.

It gave investors a push towards safe-haven assets, such as bonds and the US dollar and futures markets priced in cuts in the interest rate by the Federal Reserve by the year’s end.

It is expected that the Feds fund rate would reach its peak in June at 4.85%. It is widely expected that the Fed will reduce its rate hike to 25 basis points in the next month, as inflation shows signs of easing.

The US central bank had already reduced the size of its increase back in December from 75 basis points to 50 basis points.

More details

Nonetheless, there were still some policymakers who seemed to have a hawkish stance, as they signaled that they would continue pushing for more hikes. In fact, some even supported a policy rate of 5%.

On Thursday, local data showed that employment in Australia had declined unexpectedly in December, which only worsened the risk-off mode and put the Aussie under pressure.

There was also a rise in three-year bond futures by 20 ticks, which saw them reach 97, resulting in a 3% yield.

Global declines were extended with the yields in local government bonds. There was a 4 basis points decline in 10-year government bond yields to 3.404%, which is the lowest since December.

There was also a decline of 9 basis points in 3-year bond notes, which dropped to 3.005%. There is a 60% chance priced in of an interest rate hike by the Reserve Bank of Australia in February.

But, there is a 40% chance that the RBA may decide to hit pause, as it has already hiked interest rates by 300 basis points since May last year.