The Australian dollar was on track on Friday to post a 1 percent weekly gain, displaying remarkable resilience amid a commodity tumble and growing speculation of a Federal Reserve interest rate hike next month. The Australian dollar held firm at $0.7132, having leapt 0.9 percent on Thursday after a strong jobs report led markets to widen the odds of an interest rate cut.
Interbank futures nearly priced out the chance of another cut in the Reserve Bank of Australia's 2.0 percent cash rate, cutting the probability of a move in February to 30 percent, from around 50 percent earlier in the week. The upbeat data also sent bond yields higher, widening the spread between Australian and US two-year yields to 119 basis points and providing extra support to the Aussie dollar.
"We believe in the short term, there is scope for AUD/USD to lift and test 0.7200-0.7250," said Richard Grace, chief currency and rates strategist at Commonwealth Bank of Australia. Copper tumbled to six-year lows, while iron ore hovered near four-month troughs.
The Aussie has gained more than one full cent this week, distancing itself from a one-month trough touched on Tuesday. Resistance was found at $0.7170. Across the Tasman sea, the New Zealand dollar held at $0.6541, having edged off a one-month trough around 65 cents on Thursday. For the week, it was mostly unchanged, having been stuck in a thin band of $0.6499 to $0.6589. But it was nursing losses against its Aussie cousin on a diverging rate outlook between Australia and New Zealand. The Aussie was heading for a 1.0 percent weekly gain, having already risen 2.5 percent the week before.
The kiwi has come under pressure on growing speculation of further easing by the Reserve Bank of New Zealand in December. New Zealand government bonds gained, sending yields a couple of basis points lower. Australian government bond futures hovered near multi-month lows, with the three-year bond contract up 1 tick at 97.860. The 10-year contract was also 1 tick firmer at 97.0250, while the 20-year contract added 1.5 ticks to 96.4900.
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