The Australian dollar suffered a setback on Thursday when a hike in mortgage rates by one of the country's major banks added to the case for a cut in official rates, even as domestic jobs data showed a still solid labour market.
The Aussie dollar AUD=D3 lapsed to $0.7128, unwinding all of a data-inspired jump to $0.7168. It still has major chart support at the week's low of $0.7116, while resistance lies at $0.7180 and $0.7205.
The retreat came after National Australia Bank joined the other majors by raising its variable mortgage rates by 12 to 16 basis points, blaming higher funding costs. The other three majors had hiked back in September.
The move was seen as another blow to a housing market already suffering the steepest fall in home prices in two decades and a slowdown in new building.
Such weakness is one reason investors have moved to price in a real chance of a cut in interest rates this year, even though the Reserve Bank of Australia (RBA) has long argued the next move will be higher.
Futures
0#YIB: imply around a 56 percent probability of an easing in the 1.5 percent cash rate by the year end, a marked turnaround from just a couple of months ago.Local bond futures recouped early losses, with the three-year bond contract YTTc1 adding 1.5 ticks to 98.245. The 10-year contract YTCc1 firmed half a tick to 97.7250.
As recently as November, the three-year future had been as low as 97.775.
It also echoes the swing in expectations for U.S. rates, which has gone from two hikes to almost nothing for this year.
The sea change on rates has come despite a still resilient Australian labour market.
Government data out Thursday showed employment rose a surprisingly brisk 21,600 in December, nudging the jobless rate back down to 5.0 percent to match a low from early 2012.
"The RBA would have been a little relieved by the data given intensifying headwinds elsewhere, from softer Chinese/global growth, a further weakening in housing, and continued restriction of credit," said Su-Lin Ong, head of Australian fixed income strategy at RBC Capital Markets.
"The state of the labour market is key in determining how the economy adjusts to a much weaker housing market in 2019, a challenged consumer and potential downside surprises to global growth."
The pullback in the Aussie spilled over into the New Zealand dollar NZD=D3 , leaving it flat at $0.6786 from an early top of $0.6808. That was still some way from the week's trough of $0.6707, but short of resistance around $0.6848.
The currency had been rallying since inflation data out Wednesday proved firmer than bears had wagered on, sparking a lengthy round of short-covering.
