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NZ dollar extends declines, bond yields sag as job market loosens

SYDNEY, May 1 (Reuters) – The New Zealand dollar
extended its overnight declines on Wednesday while bond yields
sagged as a soft reading on the local labour market reinforced
bets rate cuts will come later this year.

Elsewhere, traders are awaiting the outcome from the U.S.
Federal Reserve policy meeting later in the day, which has
garnered all the attention given the recent drastic shift in
global interest rate expectations as inflation proves hard to

The kiwi dollar slipped 0.2% to $0.5880, having
already tumbled 1.5% overnight to as low as $0.5888 as strong
U.S. labour costs forced markets to further pare back easing
bets from the Fed this year, although it still has support
around $0.5860.

Markets are wagering there is a 27% probability that the Fed
will not cut rates at all by the year end, compared with 18% a
day before, according to CME FedWatch tool.

As a result the Australian dollar was nursing heavy
losses at $0.6467, having plunged 1.4% overnight to breach its
200-day moving average of $0.6501.

Data from New Zealand showed that the country’s jobless rate
ticked higher to 4.3% in the first quarter, more than expected,
while employment unexpectedly fell 0.2% from the quarter before,
justifying rate cuts later in the year.

“With the labour market firmly in disinflationary territory,
the RBNZ can be patient and wait for further progress in the
inflation data before shifting its stance,” said analysts at
ANZ, referring to the Reserve Bank of New Zealand.

“We maintain our expectation that progress on the domestic
disinflation front is consistent with OCR cuts in 2025.”

Two-year swap rates fell as much as 9 basis
points (bps) to 5.02% before bouncing back to $0.5070. Two-year
bond yield dropped 5 bps to 4.945%.

Futures imply an easing of 38 basis points from the Reserve
Bank of New Zealand this year, likely commencing from October.

As a result, the Australian dollar, which has
been lifted by risk of another rise in local interest rates,
climbed to another 10-year high on the kiwi to NZ$1.1016.

The RBNZ also on Wednesday said the country’s financial
system remains strong in the face of high interest rates.

(Reporting by Stella Qiu; Editing by Sonali Paul)

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