The pair came under pressure after the latest industrial and retail sales data from their largest trading partner China fell short of analysts' forecasts despite a boost from a low base last year, adding to evidence of a sputtering COVID-19 recovery. The Aussie also failed to get much of a leg up from a hawkish-sounding Reserve Bank of Australia, which warned that more rate rises may be required to bring inflation to heel. In minutes from its latest policy meeting, the RBA noted more upside risks to inflation, which is not set to fall back to the top of the target range until mid-2025.
"The minutes of the RBA Board's May meeting strike us in tone as on the hawkish side," said Adam Boyton, head of Australian economics at ANZ.
"We see the risks around our expectation of one final 25bp rate hike in August being that the RBA hikes more and/or sooner than we anticipate. Easing remains some considerable time off." Australia is set to report wages data for the first quarter, which would be key to the RBA's policy decision next month. Economists expect annual pay growth to pick up to 3.6% from 3.3% in the previous quarter. Markets still see the RBA holding rates steady in June, although there is a higher chance that the central bank could move again in August or September. Also weighing on the market is a consumer sentiment survey that showed the consumer mood darkened to just a little better than in the depths of the COVID pandemic, after the surprise rate decision by the RBA in May and a restrained Australian budget that doled out limited cost-of-living support. Three-year Australian yields reversed gains and were flat at 3.141%, while the 10-year was up 2 bps at 3.447%. (Reporting by Stella Qiu; Editing by Edmund Klamann)
