SYDNEY, Jan 19 (Reuters) – The Australian dollar reversed a recent rally on Thursday as rising fears of a US recession and weak local employment data hit the risk-sensitive currency, while the Kiwi was little moved by Prime Minister Jacinda Ardern’s resignation .
The Aussie slipped 0.4% to 0.6910%, its weakest level in a week after hitting a five-month high of $0.7064 just one session earlier. It is now facing resistance around 70 cents and has support at the 14-day moving average of $0.6889.
The kiwi fell 0.2% to $0.6428 after hitting a seven-month high of $0.6530. It has support at $0.6360 and did not react much to the news that Prime Minister Jacinda Ardern will resign next month.
US data showed overnight that retail sales in December fell by the most in a year and manufacturing output fell by the largest in nearly two years, stoking fears the world’s largest economy is heading for a recession.
That pushed investors back to safe-haven dollars and bonds, with futures markets pricing in Federal Reserve rate cuts through the end of the year after the Fed’s interest rate peaked at 4.85% in June.
The Fed is widely expected to slow its rate hike to 25 basis points in February as inflation eases, after only scaling back the scope of rate hikes in December.
However, a number of policymakers sounded dovish overnight, signaling they would press ahead with further rate hikes, with several endorsing a policy rate of at least 5%.
Local data on Thursday, which showed Australian employment fell unexpectedly in December, also added to risk aversion and weighed on the Australian.
Three-year bond futures shot up as much as 20 ticks to 97, implying a 3.0% yield. It last traded at 94.97.
Local government bond yields continued global declines. The 10-year bond yield fell 4 basis points to 3.404%, its lowest since mid-December, while the 3-year bond yield fell 9 basis points to 3.005%.
Futures imply a roughly 60% chance that the Reserve Bank of Australia will hike rates in February, but also a 40% chance that the RBA will pause as rates have risen 300 basis points since May.
Editing by Sam Holmes
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