Aussie loses out as kiwi gets the yield advantage

The Australian dollar was heading for heavy weekly losses on Friday as rate-cut risk returned with a vengeance, while its New Zealand neighbour went the other way after a policy easing was ruled out for at least a couple of months.

The Aussie was pinned at $0.6796, having lost 0.9% for the week and left behind its recent three-month top of $0.6930. It was also off 1.7% for the week against the yen at 73.61 yen, having hit a one-month low overnight.

The kiwi dollar, in contrast, was up almost 1% for the week at $0.6389 having found strong support around $0.6320 and with yields moving in its favour.

For the week so far, the Aussie was down a hefty 1.8% on the kiwi at NZ$1.0639.

The Aussie had already been undermined by concerns over the Sino-US trade talks and ongoing unrest in Hong Kong, so it was vulnerable when local jobs data this week showed a surprise 19,000 drop in October.

That was the biggest fall in three years and nudged unemployment back up to 5.3% and further away from the Reserve Bank of Australia's (RBA) ultimate goal of 4.5%.

Markets imply only a one-in-three chance of an RBNZ cut in February, rising to 68% by June.

That had yields moving in the kiwi's favour, with the two-year bond now paying 1.05% after surging 15 basis points on Thursday. A month ago it was at 0.72%.

Australian bonds went the other way, with three-year yields

dropping 14 basis points over the week to stand at 0.73%. The three-year bond future firmed another 1.5 ticks to 99.265 on Friday, while the 10-year contract was up 15 ticks on the week at 98.8550.