Analysts trimmed their bearish outlook on the Australian and New Zealand dollars, with expectations of stable domestic interest rates seen to support their yield appeal and limit the currencies' downside. A Reuters poll of 53 analysts saw the Aussie at $0.7500 in one and three months, but the survey was completed before the commodity currency skidded to its lowest since mid-January at $0.7383.
The Australian dollar shed more than a full US cent on Wednesday after the Federal Reserve remained upbeat on economic growth, setting a fire under the US dollar. The Aussie traded last at $0.7411. The median prediction was for modest losses to $0.7400 in six months, in line with the April poll. The 12-month view moved up slightly to $0.7450, compared with $0.7400 the previous poll.
The local dollar is up 3 percent so far this year, having found support from attractive government bond yields even as the US Federal Reserve started to tighten its monetary policy. Australia's 2-year bonds pay 1.7 percent, while their New Zealand equivalent offer 2.1 percent - eye-popping compared with the negative yields of Germany, France, Italy and Japan.
Earlier this week, the Reserve Bank of Australia (RBA) kept rates steady at a record low 1.5 percent, citing improvement in the global economy. Inter-bank futures show almost no chance of an easing this year, while a majority of economists forecast steady rates until mid-next year. This is partly why some analysts are bullish on the Aussie dollar. "We no longer expect the RBA to cut (rates)," said Elias Haddad, a senior strategist at Commonwealth Bank of Australia.
"We could have some further upward adjustments to interest rate hike expectations in favour of the Australian dollar as inflation in Australia slowly picks up and economic activity remains encouraging," he said, seeing the Aussie at 78 cents in 12 months. Across the Tasman Sea, analysts also upgraded their forecasts for the New Zealand dollar.
The kiwi was seen to modestly weaken to $0.6865 in 12 months, from $0.6900 in the April poll. On a one-month horizon, however, the kiwi was seen at $0.7000, from $0.6873 currently but as with its Aussie cousin, the survey was taken before commodity currencies were hit hard.
The six-month outlook was $0.6900, in line with the April poll. The currency has slipped 1 percent this year, largely due to expectations of higher US interest rates and steady rates at home. Still, its downside is seen as limited because of its relative yield appeal. The Reserve Bank of New Zealand is expected to keep rates at a record low 1.75 percent at its policy review next week. The RBNZ said earlier this year it had no intention to raise rates for perhaps another two years. Nonetheless, debt futures are pricing in a 20 basis point tightening by February.