News: Australia, NZ dollars cheer upbeat data, bonds dive

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    The Australian and New Zealand dollars got a lift from strong local data on Wednesday as markets counted down to a widely expected U.S. rate hike, while bonds copped a kicking.

    The Aussie crept up 0.3% to $0.7116 AUD=D3 , and a little further away from its recent three-month low of $0.7030. It needs to clear resistance at $0.7148 to extend the bounce.

    The kiwi dollar firmed slightly to $0.6452 NZD=D3 , but remained uncomfortably close to the recent two-year trough of $0.6413.

    Investors fully expect the Fed to raise rates by 50 basis points to 0.75-1.0% later Wednesday and have already priced in rates of 2.0-2.25% for July, so they need policymakers to keep sounding hyper-hawkish.

    That aggressive pricing has so far overshadowed this week's move by the Reserve Bank of Australia (RBA) to lift rates by 25 basis points to 0.35%.

    The market 0#YIB: also now doubts the bank will move to 0.75% in June, seeing more chance of another quarter point rise to 0.60%.

    Yet futures still imply rates of 3% by the end of the year, so investors assume it will speed up at some stage.

    "The hawkish shift in the RBA's reaction function points to a faster pace of policy normalization in 2022," said Andrew Boak, an economist at Goldman Sachs Australia.

    "We now expect the RBA to lift rates to 2.6% by December 2022 - previously 1.75% - and lean towards the normalization being front-loaded via back-to-back 50bp hikes in June/July and a series of monthly 25bp increases from August to December."

    The case for rapid-fire moves got some support from domestic data on Wednesday showing retail sales jumped 1.6% in March, outpacing forecasts for a third straight month.

    Jobs data in New Zealand were also upbeat with unemployment holding at record lows of 3.2% and wages hitting a 13-year high, encouraging investors to price in yet more tightening from the Reserve Bank of New Zealand (RBNZ).

    "A lack of liquidity and one-sided trading have seen some chunky moves higher in yields," said Jarrod Kerr, chief economist at Kiwibank.

    "We still expect the RBNZ to deliver a 50bp hike at the May 25 meeting, taking the cash rate to 2%. We see the RBNZ then keep lifting the cash rate to 3% by November."

    Two-year swap rates NZDSM3NB2Y= jumped 11 basis points on the data to 3.97%, the highest since late 2014. The yield on 10-year New Zealand bonds NZ10YT=RR also leapt 11 bps to 3.828%, while across the Tasman, three-year Australian government bond futures YTTc1 dived 11.5 ticks to 96.720, a decade low and 10-year futures YTCc1 fell 14.5 ticks to 96.415.

    (Addiational reporting by Tom Westbrook in Singapore. Editing by Sam Holmes) (([email protected]; +65 6973 8284;))

 
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