The Australian and New Zealand dollars are expected to hold near multi-month peaks in the near-term but further gains are seen capped as their yield advantage narrows amid rising expectations of monetary tightening in Europe and the United States. A Reuters poll of 52 analysts predicted the Australian dollar at $0.7600 in one month, up from earlier expectations of $0.7400.
It was trading at $0.7585 on Friday after hitting a 3-1/2 month high of $0.7712 last week. The currency was seen at $0.7500 in three months, up 1 cent from the May survey. It will stay at that level over the next six months before edging lower to $0.7470 on a one-year horizon, the survey shows.
The Aussie has been on an uptrend since early May, as a bull run in the US dollar - which began when Donald Trump won the US presidential election in November - ended. The antipodean currency is already up more than 5 percent so far this year, becoming one of the best performing major currencies.
"We are looking for a firmer Australian dollar largely because of an improvement in global economic activity which is supportive of commodity prices like iron ore," said Elias Haddad, senior currency strategist at CBA. CBA sees the Aussie at 78 US cents in 12 months. "Australia's current account deficit is the smallest since the late 1970s and is only 6 percent of the country's economic output. That would continue to underpin the fundamental value of the Australian dollar," he added.
The commodity driven currency is finding support from higher prices for Australia's major exports - iron ore and coal - which have delivered seven straight months of trade surpluses after years of deficits. However, analysts expect further upside to be capped as the Aussie's yield advantage narrows with the Reserve Bank of Australia (RBA) staying pat on interest rates at the same time that the US Federal Reserve continues to tighten policy.
Central banks in England, Europe and Canada are also sounding unexpectedly hawkish. In contrast, markets assume policymakers in Australia and New Zealand will keep their rates at record lows for a long time to come. The premium paid by Australian two-year debt over its US counterpart has dwindled to just 33 basis points, the smallest since early 2001 and down from 119 basis points this time last year.
The New Zealand dollar was seen at $0.7200 in one month, up 2.8 cents from the April poll, but slipping to $0.7100 in three months. It was last at $0.7286, not far from a five month top. The six-month outlook dropped further to $0.7050, staying there over the next 12 months. The currency has been slipping since the Reserve Bank of New Zealand last month reaffirmed its intention not to raise rates for perhaps another two years, undermining carry trades. The Kiwi is also up more than 5 percent so far this year, with most of the gains coming in since early May.