Yesterday, the local currency suffered a setback on when NAB’s mortgage rate hike added to the case for a cut in official rates, even as domestic jobs data showed a still solid labour market.
The Aussie dollar lapsed to 71.28 US cents, unwinding all of a data-inspired jump to 71.68.
The retreat came after NAB 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 has long argued the next move will be higher.
Futures imply around a 56 per cent probability of an easing in the 1.5 per cent cash rate by the year end, a marked turnaround from just a couple of months ago.
It echoes the swing in expectations for US rates, which have gone from two hikes to almost nothing for this year.
But ABS data out Thursday showed employment rose by a surprisingly brisk 21,600 in December, nudging the jobless rate back down to 5.0 per cent 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.”
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