US bond yields firmer, 10-yr through 4%, 2-yr nearing 5%, dollar stronger. JOLTS job openings falls to a 2+ year low, but US firms retain workers. RBA keeps the cash rate on hold for a second month but may not be done

By Stuart Talman, XE currency strategist

The US dollar is stronger across the board, continuing to benefit from superior macro data flow, rising treasury yields and a stock market that is yet to show any signs of cracking despite unsustainably lofty valuations.

From the penthouse to the basement……

It’s been an ugly 24 hours for the antipodeans, notable laggards through Tuesday. The New Zealand dollar has fallen in sympathy with its trans-Tasman neighbour, shedding around one-and-a-quarter-percent, marking the intraday low near 0.6130.

A break below 61 US cents, which has not been breached since late June, looks a foregone conclusion, unless today's employment report runs hotter than the consensus forecast.

The Australian dollar is the clear underperformer falling around one-and-three-quarters-of-a-percent, nearing an important test of major support at 66 US cents.

The catalyst for the Aussie and Kiwi weakness - the Reserve bank of Australia's interest rate decision…..the cash rate on hold. The key takeaways:

• RBA on hold, maintains cash rate at 4.10%
• Tightening bias maintained
• Weak growth outlook offsetting tight labour market

With market pricing favouring an on-hold decision but the slim majority of polled economists calling for a 25bps hike, it was always going to be a finely balanced decision.

Given the RBA meets more frequently than its peers, it is afforded more flexibility should it choose to take a wait-and-see approach. Following last week's softer-than-expected June quarter inflation print, the RBA deemed it necessary to pause for a second month, despite the labour market remaining ultra-tight.

Whilst inflation is receding it remains uncomfortably high, potentially requiring more tightening from the RBA should the path lower stall over the coming months.

Clearly, the RBA is trying to navigate a path through the offsetting forces of below trend economic growth and a historically tight labour market that is yet to show any signs of material loosening.

Whilst market pricing heavily favours another on-hold decision at the 05 September meeting, this will approach a 50/50 call should both the monthly CPI indicator and the July jobs report surprise to the upside.

Predictably, the Kiwi strengthened against the Aussie, NZDAUD catapulted from 0.9240 to an intraday high at 0.93, a two-week high. Whether the pair can mount a re-test of the 17 July near 0.9320 largely depends on today's local jobs numbers -the unemployment rate expected to climb from 3.4% to 3.5% whilst employment change is expected to climb by 0.6%, down from 0.8%, the month prior.

In other news from Tuesday, the widely followed JOLTS job openings survey in the US fell to its lowest level since April 2021. On its own, this can be interpreted as softening labour demand, however the layoff rate component of the survey remains robust, indicative of employers unwilling to let workers go despite the widely expected slowdown.

The other data point of note, the ISM Manufacturing PMI, increased from 46.0 to 46.4 but missed the consensus estimate of 46.8. The sub-50.0 result extended the streak to a ninth month of contraction in factory activity, as demand remains weak, production slows due to lack of work, and suppliers continue to have capacity.

Despite the somewhat soft data, US bond yields are firmer, the yield on the benchmark 10-year bond climbing through 4.00% whilst the Fed-sensitive 2-year yield appears to be setting up for a move back up through the 5.00% mark.

Higher yields will continue to support the dollar, delaying the expected period of cyclical dollar weakness. Economic exceptionalism also places a floor under the US dollar.

In addition to the local jobs numbers, ADP Employment Change is released in the US. A hot ADP number would continue this week's theme of a stronger dollar.

NZD technicals are bearish, further downside likely unless we receive an upside beat for local jobs. We look for NZDUSD extends further into the low 0.61's.

Stuart Talman is Director of Sales at XE. You can contact him here.