SYDNEY: The Australian and New Zealand dollars extended losses on Friday, falling under the broad strength of the US dollar, as markets pared back the chance of a rate cut from the Federal Reserve in December.
The Aussie slipped 0.1% to $0.6548 after skidding 0.3% overnight to mark the second straight session of declines.
It is now some distance away from its three-week high of $0.6617, but is still set for a weekly gain of 0.5%.
That was, in part, helped by gains on crosses like the kiwi and the Japanese yen after a hot domestic inflation report extinguished hopes for any rate cuts from the Reserve Bank of Australia this year.
Markets imply an almost non-existent chance that the RBA would cut its 3.60% cash rate by a quarter point on Nov. 4, a view shared by all of the economists polled by Reuters.
Rates are expected to bottom out at 3.35% by the middle of next year.
That led the Aussie to outperform its peers this week, up 0.9% on the kiwi and 1.3% on the Japanese yen.
Australian bonds were headed for their worst week since April last year, with three-year bond futures down a whopping 26 ticks to 96.36.
“Monetary policy is still somewhat restrictive, so some further cuts to the cash rate next year are warranted,” said Luci Ellis, chief economist at Westpac, who changed her view to a hold next week after the inflation data was released.
“Without further rate cuts, inflation would fall further than this.
We therefore expect two more 25bp cuts; the earliest likely date for the first of these cuts is now May, followed by August.“
The Commonwealth Bank of Australia has said the current easing cycle is over, while National Australia Bank and ANZ still have one cut left in their forecasting profile for next year.
The kiwi dollar slipped 0.2% to $0.5730 after dropping 0.4% overnight to as low as $0.5727. It is set for a weekly loss of 0.3%.
Investors still assume the Reserve Bank of New Zealand will trim its 2.5% cash rate by 25 basis points in November, but have largely given up on the idea of a half-point reduction.
Prasanna Gai, a member on the RBNZ’s rate-setting committee, said on Friday that US tariffs have acted as a negative demand shock for the economy and appeared to have offset some of the monetary easing since 2024.
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