Australia, NZ dollars extend rally, RBNZ emphasises policy patience

SYDNEY: The Australian and New Zealand dollars extended their rapid rally on Wednesday as relatively high local yields drew buyers, and New Zealand's central bank sounded upbeat on the local economy even as it signalled rates would stay low.

The Aussie climbed to $0.7945, its highest since February 2018 and a rise of two cents in just four sessions. The next chart barriers are $0.7988 and $0.8000, ahead of a peak from January 2018 at $0.8136.

The kiwi dollar reached $0.7378, levels not seen since April 2018 and a gain of 1.5 cents in four days. Its next targets are $0.7395 and $0.7437.

Dealers reported a wave of bids against currencies where central banks were working hard to keep yields low, including the yen, euro and Swiss franc.

Talk of buying from Japanese investors helped the Aussie jump to 83.79 yen, the highest since late 2018 and approaching major chart resistance at 84.02.

The kiwi's ascent came as the Reserve Bank of New Zealand (RBNZ) kept interest rates at 0.25% as expected and said the economy was strong enough that further stimulus was not necessary for now.

Yet the bank also emphasised that it would take a long time to reach its inflation and employment targets and it was prepared to be patient on policy until then.

"The RBNZ acknowledged the significant improvement in the outlook," said Jarrod Kerr, chief economist at Kiwibank. "But the cash rate is likely to remain unchanged well into next year because the outlook remains highly uncertain."

"All going well, we expect a rate hike by the end of next year."

There had been speculation the central bank might taper its stimulus in some way given the domestic economy was recovering and house prices were running hot again.

That, combined with speculation about a revival in global inflation, had sent local bond yields surging to 11-month highs.

Yields on NZ 10-year bonds were last at 1.715%, just off that peak, and remained far above the 1.01% held at the start of this year.

Australia bonds have also been belted recently and traders had thought the Reserve Bank of Australia (RBA) might offer support by buying more three-year bonds on Wednesday, but it skipped the opportunity.

That left yields on three-year paper at 0.14%, above the RBA's target of 0.10%, while futures eased to 99.735 implying an yield of 0.265%.