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Australian, New Zealand dollars sideswiped by Federal Reserve, mixed domestic data
[SYDNEY] The Australian and New Zealand dollars nursed hefty losses on Thursday after the US Federal Reserve sounded less dovish on future rate hikes than investors had wagered on, sending equities and risk assets into a spin.
The kiwi took an additional knock after data showed the domestic economy slowed by more than expected in the third quarter, while the Aussie found support from a solid jobs report.
The kiwi dollar was huddled at US$0.6753, having shed 1.2 per cent overnight in the wake of the Fed's latest rate rise. Chart support now lies at US$0.6706.
The Aussie idled at US$0.7112, after losing 1 per cent overnight and touching a six-week trough of US$0.70875. It has major support from US$0.7040 to US$0.7020.
Yet local bonds extended their recent surge amid speculation the Fed's commitment to "some" more rate rises would depress economic growth and inflation, which was already under downward pressure from sliding oil prices.
Australian 10-year yields hit their lowest since mid-2017 at 2.35 per cent, a world away from the November peak of 2.83 per cent. The next target is a 2.33 per cent low from 2017.
Three-year bond futures also reached their highest since mid-2017 and were last at 98.135. The 10-year contract added another 2 ticks to 97.6300.
New Zealand's 10-year yield dived to 2.405 per cent, the lowest since late 2016 and down 47 basis points in little more than a month.
The futures market also climbed as investors reacted to soft economic data by narrowing the odds on a rate cut next year.
Gross domestic product grew 0.3 per cent in the September quarter, the smallest increase in five years and half the pace forecast by analysts.
"While we may see a slight firming of growth in Q4, today's data are indicative of a broad slowdown in the economy," said Ben Udy, head of NZ economics at Capital Economics.
"That explains why we think the Reserve Bank will refrain from raising rates until late 2021."
In Australia, data showed employment rose by a surprisingly strong 37,000 in November, though all the growth was in part-time work. The jobless rate ticked up to 5.1 per cent, but only because more people went looking for work.
"The labour market remains in good shape reflecting continued above trend growth and supportive business conditions," said Su-Lin Ong, head of Australian fixed income strategy at RBC Capital Markets.
"However, ample slack remains and suggests that sustained higher wages and inflation will be challenging," she said. "Add to that the shift in the Fed and the odds are rising that the RBA may stay on the sidelines for longer."
The Reserve Bank of Australia (RBA) has kept rates at 1.5 per cent since mid-2016 and shows no inclination to change stance anytime soon.