SYDNEY: The Australian dollar was near 33-year peaks on the Japanese yen on Tuesday as rising bond yields made it an attractive destination for carry trades, while also fuelling further gains on its New Zealand cousin.
Market pricing for steady, if not higher, interest rates at home saw Australian 10-year yields strike a two-month top of 4.508% overnight.
As a result, the Aussie reached its highest level since mid-1991 on the yen at 107.93, bringing gains for the year so far to almost 12%. The next bull target is a 1990 top of 123.70.
The hawkish outlook for domestic rates was underlined by minutes of the Reserve Bank of Australia’s (RBA) last policy meeting, which showed much discussion about whether policy was tight enough to ensure inflation would slow as desired.
Markets imply about a 32% chance the RBA will hike its 4.35% cash rate at the next meeting in August and see little chance of a cut until July next year.
“The debate in the minutes illustrates a high reluctance to hike again given weak output growth, but also shows the Board is less comfortable with its current approach given upside inflation risks,” said Tapas Strickland, head of market economics at NAB.
“We see the RBA Board sticking to its strategy of a slower return of inflation to target in order to maintain gains in the labour market, and see rates on hold until May 2025.”
Australian dollar slips to 10-day low, bonds rally to end tough week
In New Zealand, recent economic data has been on the soft side of expectations with a business survey out Tuesday showing confidence took a sharp turn for the worse in the second quarter as high rates weighed heavily on demand.
Markets imply a 60% chance the Reserve Bank of New Zealand (RBNZ) will ease as early as October and have 124 basis points of cuts priced by the end of 2025.
That was one reason the Aussie climbed to a seven-week top of NZ$1.0982, nearing its May peak at NZ$1.1030.
The kiwi dollar also took a fresh fall to a six-week trough of $0.6051, after breaching its 200-day moving average at $0.6069.
The Aussie eased 0.2% to $.6642, putting it back in the middle of the $0.6576/6714 range that has held for the past six weeks or so.
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