SYDNEY, June 27 (Reuters) – The Australian dollar fell
back against a strong U.S. dollar on Thursday but held at
17-year highs on the battered yen, while domestic bonds were
hammered by risks of a rate hike this year.
The Aussie also jumped on the kiwi to the highest in a month
as the rate outlook for their respective central banks diverged.
Markets are still betting interest rates in New Zealand will be
lower this year.
The Aussie was fetching $0.6648, having given
back all of its post-CPI gains overnight to hold steady in the
face of a rising U.S. dollar. It, however, firmed on a number of
crosses, hitting a fresh 17-year high of 106.98 yen
and a one-year top on the euro.
Bonds, which already sold off on the hot Australian
inflation report for May, took another beating on Thursday as
Treasury yields jumped overnight, helping the U.S. dollar
broadly.
Three-year government bond futures slid another
10 ticks and broke major support to trade at 95.83, the lowest
in seven months. They fell 28 ticks in the past two days, the
biggest two-day fall since September 2022.
Swaps are implying a 42% chance of a quarter-point rate
hike from the Reserve Bank of Australia in August, depending on
the outcome of the full second quarter CPI report due at the end
of July. The prospects of any rate cuts are gone for this year.
Citi on Thursday joined Deutsche Bank and UBS in calling
for an August hike in the current 4.35% cash rate.
“The RBA is now in serious risk of not hitting its inflation
target by the end of 2025,” said economists at Citi in a note to
clients. “Risks are tilted towards another hike if inflation
doesn’t behave.”
RBA Deputy Governor Andrew Hauser will deliver a speech
at 7:30 p.m local time (0930 GMT), which will be closely watched
for any mention of a rate hike, given the central bank has held
policy steady for five straight meetings now.
The kiwi slipped 0.1% on Thursday to $0.6078,
the lowest in 1-1/2 months, in part due to the weakness against
its Australian cousin. It fell 0.6% overnight, with support now
at $0.6040/50.
The kiwi lost 0.7% overnight on the Aussie, the
biggest daily drop since December last year.
(Reporting by Stella Qiu; Editing by Jacqueline Wong)
