Australian dollar hits highs on yen and euro as rates diverge

SYDNEY: The Australian dollar was heading for hefty weekly gains on Friday as a diverging outlook for interest rates lifted it to a near 17-year high against the yen and a one-year top on the euro.

A rate cut from the Swiss National Bank and a dovish policy outlook from the Bank of England stood in stark contrast with the Australian situation where markets are pricing some chance the next move might be a hike.

The Reserve Bank of Australia (RBA) this week held rates at 4.35% and warned it was alert to upside risks for inflation.

Monthly CPI figures for May are due next week and are expected to show a fall of around 0.2% on the month, but a rise in the annual rate to 3.7% from 3.6%.

Even if the RBA gets by without a hike, markets see little chance of an easing until April next year. By that time, futures imply US rates will have fallen by 100 basis points. That outlook kept the Aussie firm at $0.6659, having risen 0.7% for the week, though it faces stiff resistance in the $0.6705/14 area.