The New Zealand dollar rallied to a three-month high on Wednesday as the country's jobless rate unexpectedly dropped to a ten-year low and trimmed the already-low chance of a rate cut, while the Australian dollar was steady before U.S. midterm election results.
The kiwi dollar NZD=D4 climbed to $0.6763, a level not seen since early August after official data showed New Zealand's jobless rate fell to 3.9 percent in the third quarter and confounded forecasts for 4.5 percent.
The upbeat figures might have implications for the central bank policy outlook as it meets to review rates on Thursday. The Reserve Bank of New Zealand (RBNZ) is all but certain to keep policy at a record low of 1.75 percent but could remove its dovish stance. It had earlier signalled the next move in rates could be up or down.
New Zealand government bonds
0#NZTSY= slipped as investors pared the already-slim chance of a rate cut, sending yields about 9 basis points higher across the curve."The scale of the kiwi bounce suggests more than just a knee-jerk reaction to stronger-than-expected data," said Sean Callow, forex strategist at Westpac.
"A 2019 rate cut risk is almost wiped out now." New Zealand's' employment growth rate too exceeded expectations by doubling to 1.1 percent in the quarter. However, a rate hike also remains distant given there were no signs of inflation in the report.
In a Reuters poll this week, a majority of the 16 economists surveyed predicted no change in policy with only four expecting a rate hike in the final quarter of 2019.
But those forecasts may be up for revisions.
"The dramatic fall in the unemployment rate in the third quarter suggests that the Reserve Bank...may not wait until 2021 before raising rates," said Ben Udy, Singapore-based economist for Capital Economics.
Across the Tasman Sea, the Australian dollar AUD=D4 held at $0.7253, slightly higher than Tuesday's $0.7248 and within kissing distance of a more than one-month peak of $0.7259 hit last week.
Trading was cautious as investors awaited results of the U.S. midterm elections due later in the day. The Democratic Party is expected to win control of the U.S. House of Representatives, with Republicans likely to retain their majority in the Senate. A split Congress may hurt the U.S. dollar temporarily, analysts said.
Locally, investors are watching out for the Reserve Bank of Australia's (RBA) quarterly statement on monetary policy due out Friday when it will also issue updated forecasts for growth and inflation.
Australian government bond futures eased, with the three-year bond contract YTTc1 and the 10-year contract YTCc1 each down 1 tick at 97.845 and 97.255 respectively.
