SYDNEY, July 5 (Reuters) – The Australian dollar stood
near six-month highs on Friday as yield spreads swung in its
favour, delivering a break of major chart resistance and hefty
gains on the Japanese yen.
The Aussie was up at $0.6731, having gained 0.9%
for the week so far to reach $0.6733. The next major bull target
is a peak from December last year at $0.6871.
The kiwi dollar was lagging at $0.6115, to be up
0.4% for the week. It had, however, bounced from a six-week
trough of $0.6048, but faced resistance around $0.6140.
The Aussie also climbed 1.1% for the week on the yen to
reach its highest since mid-1991 at 108.52.
“We expect AUD/USD to keep edging higher to above $0.7000
into next year, though the rise may not be linear,” said
Kristina Clifton, a senior currency strategist at CBA.
“AUD tends to lift when the U.S. cuts interest rates
modestly,” she added. “Interest rate cutting cycles by the U.S.
and other major central banks can improve the global economic
outlook, also supporting AUD/USD.”
The gains have been underpinned by wagers that the next move
in Australian rates might be up given inflation is proving
stubborn.
Consumer price inflation surprised everyone by jumping to an
annual 4% in May, leading the Reserve Bank of Australia (RBA) to
warn that a further tightening might be needed.
Markets are pricing a 33% chance the RBA could hike at its
August policy meeting, should the inflation report for the
second quarter due in late July also surprise on the high side.
In contrast, a run of soft U.S. data has seen markets revise
up the chance of a September rate cut to 73%.
The divergence in the outlook has been reflected in the bond
market. Yields on 10-year paper were up 9 basis
points for the week at 4.420%, with the spread to Treasuries
swinging hugely to +7 basis points from -30 basis points back in
April.
The Reserve Bank of New Zealand (RBNZ) meets next week and
is considered certain to hold rates at 5.5%, and likely retain a
tightening bias.
“We don’t think the markets will get a dovish tilt that
supports recent pricing of around a 50% chance of an easing in
the October Review and around 35bps priced in by end 2024,” said
Kelly Eckhold, chief economist at Westpac.
“If anything like that is coming, we will see it at the
August Statement where full forecasts can be presented and key
data on the Q2 CPI and labour market will be available.”
(Reporting by Wayne Cole; Editing by Christopher Cushing)
