Australia and New Zealand struggle as U.S. bond yields continue to rise – Reuters

SYDNEY, Jan 17 (Reuters) – The Australian and New Zealand dollars stagnated on Monday as markets priced in ever more aggressive U.S. rate hikes, while economic news out of China was too mixed to offer any relief. strong support.

The Aussie was holding at $0.7210, having slipped 0.9% on Friday as US yields hit one-year highs. The failure to hold a two-month high at $0.7314 further deteriorated the technical outlook and risked a pullback to $0.7130.

The Kiwi Dollar settled at $0.6798, after losing 0.8% on Friday. It also failed to hold a seven-week high of $0.6890, which highlighted support at $0.6733.

Data out of China showed coronavirus restrictions severely hurt retail sales in December, although industrial production fared better and the economy as a whole grew slightly faster than expected in fourth trimester. Read more

Beijing responded with a surprise monetary policy easing that could help support activity in what is Australia’s biggest export market. Analysts expect further key rate cuts in the coming months. Read more

More bearish for the Aussie was a rapid shift to the upside of market expectations for US interest rates, with futures now almost fully priced for a March rise and 1.0% lower rates. here the end of the year.

This sent Treasury yields soaring and hurt Australian bonds, where 10-year futures slipped 7 ticks to their lowest since early November at 98.040.

Investors are betting that the abrupt change in the Federal Reserve will put pressure on the Reserve Bank of Australia (RBA) to follow and tighten well ahead of its offered window of 2023.

A first rise to 0.25% is expected by June, with a greater than 50-50 chance of a move in May, while rates are expected to exceed 1.0% by the end of the year.

“With the December Fed meeting just over a week away and a likely hawkish outcome, it’s hard to see the US dollar giving up too much ground,” said Richard Franulovich, Westpac’s head of FX strategy.

“We are not convinced that the time is right for a serious break-up in the AUD and see it risking probing the $0.7100/$50 region throughout the week.”

The key national event this week will be Thursday’s jobs data, where analysts expect a solid gain of 30,000 in December, following November’s record gain of 366,100.

Editing by Kim Coghill

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