SYDNEY: The Australian and New Zealand dollars were consolidating five straight sessions of gains on Wednesday as markets scaled back wagers for higher U.S. interest rates, helping bond markets stabilise in the process.
The Aussie was holding at $0.6428, after running into resistance around $0.6445, some way from its recent 11-month trough of $0.6286.
The kiwi dollar paused at $0.6038, after reaching its highest in two months at $0.6056.
The rallies owe much to comments from some U.S. Federal Reserve officials suggesting rates there may have peaked, prompting a welcome pullback in Treasury yields.
At home, the Reserve Bank of Australia (RBA) also sounded as though it was happy to stay on pause with rate hikes.
In a speech on policy, Assistant Governor Christopher Kent outlined the ways past hikes were working to slow consumer demand and inflation, meaning the bank had time to judge whether more tightening would be necessary.
Markets have steadily scaled back expectations for another RBA hike and now imply only around a 14% chance of a rise in the 4.1% cash rate at the next meeting in November.
Investors also doubt the RBA will be in any rush to ease policy, with just 6 basis points of cuts implied for 2024.
“With markets only pricing a 30% chance of a 25 basis-point cut by end-2024, we consider there is scope for markets to shift on RBA cuts and weigh on the A$,” said Carol Kong, a currency strategist at CBA.
“We expect the RBA to start cutting the cash rate in May 2024.”
Kent also scuppered market speculation he might flag an acceleration in the RBA’s run down of its Australian government bond holdings, saying there were currently no plans for such a change.
The central bank still holds roughly A$337 billion ($216.59 billion) in federal and state government debt bought during the pandemic crisis, which it presently plans to hold to maturity.
Some analysts had though it might sell the debt at a quicker pace as a form of quantitative tightening, thus lessening the need for further increase in the cash rate.
His comments were a comfort to the bond market, where 10-year yields eased to 4.22% and away from a recent 12-year top of 4.682%.
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