Australia dollar boosted by minimum wage hike, yields jump

<html xmlns=""><head><title>Australia dollar boosted by minimum wage hike, yields jump</title></head><body>

By Stella Qiu

SYDNEY, June 2 (Reuters) -The Australian dollar advanced and local bond yields jumped on Friday as markets wagered that a large hike in the minimum wage could force the central bank's hand next week.

Rebounding commodity prices and the U.S. averting a debt default also buoyed sentiment.

The Aussie AUD=D3 rose 0.5% to $0.6608, after rallying 1.1% overnight to pull away from a six-month low of $0.6459 hit on Wednesday. It is now headed for a weekly gain of 1.4% and faces resistance at the 21-day moving average of $0.6632.

The kiwi NZD=D3 was up 0.3% to $0.6088, having risen 0.8% overnight to move away from a six-month trough of $0.5986. It is up 0.6% for the week and faces resistance around $0.6384.

After tumbling on concerns about China's economy, the Aussie received a reprieve on Friday after the country's Fair Work Commission determined a 5.75% pay rise for workers on awards and a 8.6% increase for the lowest-paid employees.

"The large increase in minimum award wages announced today will likely be of concern to the RBA, as this could boost inflation expectations and delay the return of inflation to target," said Andrew Ticehurst, a senior economist at Nomura.

"We now think it more likely than not that the RBA will raise its cash rate by 25bp next week, to 4.10%."

Markets are now split on whether the RBA would raise rates next week, after leaning towards a pause earlier. They are also wagering that the current cash rate of 3.85% is certain to reach 4.1% by August, with the risk of another hike. 0#RBAWATCH

Local bond yields jumped. Three-year Australian government bond yields AU3YT=RR rose 4 basis points (bps) to 3.44%, the highest in five days, while ten-year AU10YT=RR gained 5 bps to 3.645.

Also aiding sentiment was news that the U.S. Senate passed bipartisan legislation lifting the government's $31.4 trillion debt ceiling, averting what would have been a first-ever default.

Traders are now positioning for the release of the U.S. nonfarm payrolls report later in the day for more clues on the Fed's next move. Economists are expecting the U.S. economy added 190,000 jobs in May, slowing from 253,000 in the previous month.

Fed funds futures now price in a 70% chance that the Fed will pause its rate hikes this month, after Philadelphia Fed President Patrick Harker said the central bank should not raise rates at the next meeting.

Reporting by Stella Qiu; Editing by Kim Coghill


Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.

All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.

Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.

We are using cookies to give you the best experience on our website. Read more or change your cookie settings.

Risk Warning: Your capital is at risk. Leveraged products may not be suitable for everyone. Please consider our Risk Disclosure.