Australia, NZ dollars hold onto gains as greenback feels rate cut drag

By Stella Qiu

SYDNEY, Aug 4 (Reuters) - The Australian and New Zealand dollars held onto gains on Monday after the greenback was badly bruised by a bleak U.S. jobs report that had markets price in a near-certain chance of an interest rate cut next month.

The Aussie AUD=D3 was flat at $0.6479, after rallying 0.8% on Friday to break a six-session losing streak. That narrowed the weekly losses to 1.4% and helped the currency rebound from a six-week low of $0.6419.

The kiwi dollar NZD=D3 was also steady at $0.5918, after gaining 0.5% on Friday to rebound from a nearly three-month trough of $0.5857. It was still down 1.6% last week, with support at around $0.5850.

On Friday, the U.S. payrolls report surprised on the downside for the first time in many months. The economy added fewer jobs than expected in July, the unemployment rate ticked up, while massive downward revisions to past data suggested a sharp deterioration in labor market conditions.

Stocks dived, bonds surged and the dollar was pummelled, not helped by President Donald Trump's firing of the head of the statistics bureau, which further undermined confidence in the U.S. economic data. MKTS/GLOB

Markets moved quickly to price in a lot more easing with the probability of a September rate cut from the Federal Reserve swinging to nearly 90%, from 40% before the jobs report. Futures imply 65 basis points of easing by year-end. 0#USDIRPR

"If weakness in activity data is sustained going forward, it will make markets question the recent outperformance in the U.S. equities on deal announcements that have been lifting the USD relative to peers," said analysts at TD Securities.

"We still think that AUD, EUR, CAD, JPY have upside left and are now cleaner to buy."

The drastic shift in Fed pricing spilled over to Down Under. Markets now see a quarter point rate cut from the Reserve Bank of Australia next week is a done deal, with some risk of an outsized half-point move, although the central bank has stressed its gradual and measured approach in lowering rates. 0#AUDIRPR

Across the Tasman Sea, the Reserve Bank of New Zealand is now 80% priced for a 25 basis point cut on August 20. The second quarter jobs data - due on Wednesday - is likely to show another rise in the jobless rate to 5.3%, adding to the case of a move. 0#NZDIRPR

Bonds extended the global rally. Australia's three-year government bond yield AU3YT=RR slumped 10 bps to 3.295%, the lowest since early July, while two-year New Zealand government bond yield NZ2YT=RR tumbled 7 bps to 3.223%, the lowest since 2022.