SYDNEY: The Australian and New Zealand dollars were on the back foot again on Thursday as a fledgling rally was foiled by a renewed jump in their US counterpart, while the kiwi felt the added weight of aggressive rate cut wagers.
The pullback ended three days of gains and came despite a pick up in commodity prices.
Traders pointed to higher Treasury yields and speculation the Federal Reserve might not cut rates in December after all.
Markets imply a 54% chance of a Fed cut, down from 83% a week earlier.
That left the Aussie at $0.6508, having dipped 0.4% overnight after failing to clear resistance at $0.6545.
Support lies around $0.6480 and $0.6440.
The kiwi dollar faded to $0.5878, after topping out at $0.5922 overnight.
Major support lies at $0.5837/40. Sentiment was not helped by a gloomy outlook from New Zealand Treasury, which warned a hoped-for economic recovery would likely be delayed.
The downbeat assessment led markets to price in more chance the Reserve Bank of New Zealand would chop its 4.75% cash rate by a super-sized 75 basis points at a policy meeting next week.
Swaps now imply 56 basis points of easing, or a 100% probability of 50 basis points and around 26% for 75 basis points. Two-year swap rates were back at 3.755%, having spiked as high as 3.917% last week.
Australian, NZ dollars keep rally alive, for now
Most economists assume the RBNZ will go by 50 basis points given larger moves have only come during crises, but they also expect the bank to flag a lot more easing lies ahead.
“Anything less than 50bps next week, or a signal of fewer cuts to come next year, would cause a massive move in Kiwi rates in the wrong direction - higher,” said Jarrod Kerr, chief economist at Kiwibank.
“If the RBNZ cut as we suggest, and signal more to come, we’d expect to see market rates holding in a lower range, compared to the US, and that widening rate differential will enforce the weak tone in the Kiwi currency.”
One bright spot for the economy was prices for dairy, the country’s biggest export earner, which have risen well above their long-run average in recent weeks.
The boost to farmers is all the greater as dairy is priced in US dollars, lifting the return in kiwi dollars.
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