A weaker-than-expected Australian jobs report has put the Australian dollar on the back foot, as traders dial back expectations for another rate hike from the Reserve Bank of Australia (RBA). At the same time, markets are still pricing in a high chance that New Zealand's central bank will raise rates later this month, widening the gap between the two countries' monetary policies.
What the data showed
The latest Australian labor market figures came in softer than analysts had anticipated, raising questions about the strength of the economy. While the report did not show a dramatic collapse in employment, the miss was enough to shift expectations about the RBA's next move.
According to Reuters, traders using interest-rate swaps—financial contracts that reflect where markets think policy rates are heading—cut the implied probability of a fifth RBA rate hike this year to about 25%. That is a notable drop from earlier expectations, suggesting that investors now see less urgency for the central bank to tighten policy further.
The logic is straightforward: if the labor market is cooling, wage pressures are likely to ease, which reduces the risk of inflation staying too high. That, in turn, makes it less necessary for the RBA to keep raising rates to cool the economy.
New Zealand's central bank still seen moving
Across the Tasman, the picture is different. Swaps markets are pointing to an 86% chance that the Reserve Bank of New Zealand (RBNZ) will raise its official cash rate by 0.25 percentage points to 3% on October 28th. That would be another step in the RBNZ's tightening cycle, which has been more aggressive than the RBA's.
This divergence in expected policy paths is a key driver for currency markets. The Australian dollar slipped below around $0.6904 against the US dollar, and also weakened against the New Zealand dollar. Traders are now watching for the next major support level near $0.6867, which was the low seen in June.
Why the rate gap matters for currencies
Currency markets often treat the Australian and New Zealand dollars as a relative interest-rate trade. When one country is expected to have higher policy rates than the other, its currency tends to offer better “carry”—the income an investor earns from holding that currency in a trade.
With markets leaning toward an RBNZ hike but largely doubting another RBA move, the expected rate gap shifts in favor of New Zealand. That can pull portfolio flows and hedging activity into the New Zealand dollar, putting additional pressure on the Aussie.
Technical levels can then add fuel to the move. Once AUD/USD slipped under the support area near $0.6904, stop-loss orders—automatic sell orders placed by traders to limit losses—and momentum trading can amplify the decline. That's why the AUD/NZD cross around $1.2295 and AUD/USD near the June low of $0.6867 are likely to remain sensitive to any signal that narrows or widens the RBNZ–RBA policy-rate spread.
What it means for investors
For everyday investors, the main takeaway is that currency movements can have a ripple effect on portfolios, especially if you hold international assets or travel abroad. A weaker Australian dollar means your money doesn't go as far when buying goods or services priced in US dollars or other foreign currencies.
It can also affect companies that earn revenue overseas. Australian firms that export goods or services may see a boost to their earnings when the local currency falls, as their foreign income translates into more Australian dollars. Conversely, companies that rely heavily on imports may face higher costs.
For those with exposure to New Zealand assets, the expected rate hike could support the kiwi, but it also means higher borrowing costs for businesses and consumers in New Zealand, which could weigh on economic growth over time.
As always, it's important to remember that currency markets are volatile and influenced by a wide range of factors, including global economic data, commodity prices, and investor sentiment. The current pricing in swaps markets is not a guarantee of what central banks will actually do—it's just a snapshot of what traders expect right now.
Investors will be watching upcoming economic data and central bank communications for clues about whether the RBA will hold steady or resume hiking, and whether the RBNZ will follow through on its expected move. Any surprises could quickly shift the rate gap and send the currencies in new directions.
