SYDNEY: The Australian and New Zealand dollars got a much needed lift on Monday as the appointment of fund manager Scott Bessent as the next US Treasury secretary cheered the bond market but weighed on the dollar.
Meanwhile, investors are positioning for a dovish Reserve Bank of New Zealand on Wednesday that could surprise with a super-sized 75 basis point rate cut.
In contrast, rates in Australia are expected to stay high for a while, a reason that the Aussie is hovering at NZ$1.1165, a two-year high on the kiwi.
The Australian dollar rose 0.6% to $0.6542, about the highest level in two weeks.
It gained 0.6% last week to pull away from a three-month low of $0.6441 but resistance now lies around $0.6550. The kiwi dollar rallied 0.5% to $0.5862, having slumped 0.6% last week to hit a one-year low of $0.5817.
It has been dragged lower as market bets for a 75 bp rate cut from RBNZ keep climbing to 38% on Monday, although the majority of economists still tip for a 50 bp move.
Australia, NZ dollars come unstuck, doves wager on big kiwi rate cuts
The greenback gave up a little of its recent gains on Monday along with US yields, as President-elect Donald Trump’s choice of Bessent as US treasury secretary was welcomed by the bond market as an old Wall Street hand and a fiscal conservative.
Data showed retail sales in New Zealand fell 0.1% in volume terms last quarter, a smaller drop than many economists had expected thanks to stronger vehicle sales.
“These developments would argue against an unusually large OCR cut from the MPC on Wednesday, ie, no -75bp cut,” said Josh Williamson, chief economist at Citi Australia which has abandoned its previous call for a 75 bp move.
“But to guarantee an improvement in household spending, the MPC will need to at least deliver an OCR cut of the same magnitude as in the October meeting, ie, -50bps again.”
Also on Wednesday, Australia will release the monthly inflation data.
Forecasts are centred for a rise of 2.3% in October, picking up from 2.1% but the results are unlikely to move the rate pricing much as the first month of the quarter contains little new information on the inflationary pulses in the services sector.
Ahead of Governor Michele Bullock’s speech at the annual CEDA conference on Thursday evening, swap rates imply a first rate cut from the Reserve Bank of Australia is not fully priced in until May next year.
Local bonds rallied in tandem with their US counterparts.
Three-year bond futures rose 4 ticks to 95.96 while ten-years gained 6 ticks to 95.5, the highest in three weeks.
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