AUD/NZD Climbs as Rate-Hike Bets Strengthen

Key Moments

AUD/NZD Climbs on Strong Australian Labor Market Data

The AUD/NZD cross advanced firmly as buyers stepped in following the release of Australia’s latest monthly employment report. The pair moved up to a one-and-a-half-week peak in the 1.2060-1.2065 range during the Asian session on Thursday, extending this week’s recovery from the 1.1935 zone, which marked its lowest level since late March.

The rally in the Australian Dollar (AUD) was driven by stronger-than-expected labor market figures. According to the Australian Bureau of Statistics (ABS), the Unemployment Rate remained at 4.4% in June, while total employment increased by 76.3K. The jobs gain exceeded even the most optimistic projections and added momentum to expectations that the Reserve Bank of Australia (RBA) could deliver additional interest rate hikes.

The combination of solid employment growth and unchanged unemployment has reinforced views that the RBA may not be finished tightening, providing a supportive backdrop for the AUD and, by extension, the AUD/NZD cross.

Market Views on RBA Policy Outlook

Strategists at Brown Brothers Harriman highlight that market pricing continues to favor further RBA tightening, noting that “RBA cash rate futures imply 60% odds of one final 25bps hike by year end to 4.60%.” At the same time, they emphasize a more cautious perspective, warning that “the risk is skewed towards a more extended pause in the RBA tightening cycle,” a view they suggest is likely to remain “a headwind for AUD.”

This nuanced policy outlook – where investors see a significant probability of another rate increase but also acknowledge the possibility of a prolonged pause – is shaping sentiment toward the Australian Dollar and tempering expectations for a one-way move in AUD/NZD.

NZD Underperforms but RBNZ Expectations Offer Support

In contrast, the New Zealand Dollar (NZD) has struggled to attract sustained buying interest. Heightened tensions between the US and Iran have underpinned demand for the safe-haven US Dollar (USD), leaving risk-sensitive currencies like the NZD on the defensive.

However, the policy outlook for the Reserve Bank of New Zealand (RBNZ) provides an important counterweight. Expectations that the RBNZ will implement another rate hike at its September meeting, supported by stronger-than-expected domestic inflation data, could lend support to the NZD and act as a brake on further AUD/NZD appreciation.

Strategists at Brown Brothers Harriman state that “above target inflation and a more favorable domestic growth outlook argue for additional RBNZ rate hikes which is NZD supportive.” They also recall that at its July 8 meeting, the RBNZ raised the Official Cash Rate (OCR) by 25bps to 2.50% and indicated that “further OCR increases appear likely at upcoming meetings,” reinforcing a constructive medium-term narrative for the New Zealand currency.

Australian Employment Change: Details and Market Implications

The Employment Change statistic, published by the Australian Bureau of Statistics and adjusted for seasonal effects, tracks month-to-month variations in the number of employed people. A higher reading is generally regarded as supportive for consumer spending and overall economic activity, and is typically seen as positive for the Australian Dollar.

The latest release showed a notable upside surprise, as outlined below:

Given its magnitude relative to both consensus expectations and the prior reading, the 76.3K rise in employment has strengthened the case for tighter RBA policy and has been a key driver of the latest move higher in AUD/NZD. At the same time, the prospect of further RBNZ rate increases, backed by above-target inflation and a firmer domestic growth outlook in New Zealand, may limit how far and how fast the cross can extend its gains.