SYDNEY: The Australian and New Zealand dollars rallied on Wednesday as their US counterpart came under broad-based pressure, overshadowing slightly dovish comments from officials on domestic monetary policy.
The Aussie firmed 0.5% to $0.6720, moving further away from its recent trough of $0.6595.
The kiwi dollar added 0.4% to $0.6225, having reached its highest in almost three weeks.
The Reserve Bank of New Zealand (RBNZ) wrapped up its latest policy meeting by keeping rates at 5.5% as expected, ending a run of 12 increases that lifted rates by a total 525 basis points.
The bank said it was “confident” that interest rates were at a restrictive level that would last for some time and eventually bring inflation back to target.
Markets took that to mean there was less need for yet another hike in rates, and now imply about 11 basis points of further tightening compared with 18 basis points before the announcement.
Two-year swap rates fell 10 basis points to 5.50%, well below the 15-year peak of 5.7375% struck last week as bond yields globally spiked. “We believe the market had mistakenly priced in another hike to 5.75%,” said Jarrod Kerr, chief economist at Kiwibank.
“Inflation has peaked and the economy is in recession,” he added. “Recessions kill inflation and our recession may last into 2024, so we have pencilled in a rate cutting cycle commencing in early 2024.”
Australia, NZ dollars recoup losses on pullback in US yields
Markets show little chance of a rate cut until August next year.
On the other side of the Tasman, Reserve Bank of Australia (RBA) Governor Philip Lowe said it had yet to be seen whether a further rise in Australian rates would be needed, and he had an open mind on the outcome.
That left the market divided on whether it would raise again at its August meeting, with futures showing about a 57% chance of no move.
The RBA hit the pause button on increases this month with rates at a decade high of 4.1%, having increased by 400 basis points since May last year.
Three-year bond futures gained 4 ticks to 95.930 on the comments, while 10-year bond yields eased to 4.14% and away from last week’s top of 4.315%.
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