SYDNEY: The Australian and New Zealand dollars found their footing on Wednesday after sliding the previous session, while bonds surged as markets wagered interest rates would be heading lower next year both at home and abroad.

The Aussie edged up 0.3% to $0.6575, though that followed a 1% drop on Tuesday. Resistance lies around $0.7580, with support at $0.6530.

The kiwi dollar firmed to $0.6146, after dropping 0.6% on Tuesday.

It has support around $0.6090.

The Aussie had taken a hit on Tuesday after the Reserve Bank of Australia (RBA) held rates steady at 4.35% at its policy meeting and left open the question of whether it might need to hike again.

Australia, NZ dollars hit four-month highs, eyes on RBA

Markets reacted by paring back the chance of a further hike, a shift that was turbo charged overnight when a top official at the European Central Bank opened the door to early cuts and a US job openings report proved surprisingly soft.

Investors figured it would be hard for the RBA to be hiking next year if other major central banks were easing, and slashed the probability of another RBA hike from 44% to just 10%.

The dovish outlook was supported by data showing Australia’s economy grew a meagre 0.2% in the third quarter as rising borrowing costs and tax payments flattened consumption.

Notably, the household savings ratio sank to its lowest since 2007 at just 1.1%, down from 7.0% a year earlier.

“The low level of the savings rate suggests that consumers may soon feel inclined to tighten their belts,” said Marcel Thieliant, head of Asia-Pacific economics at Capital Economics.

“The upshot is that the RBA is now done tightening and we’re sticking to our forecast that it will lower interest rates in the second quarter of next year, earlier than most anticipate.”

Markets were moving in that direction anyway and futures now imply the chance of a rate cut as early as August at 51%, compared with zero on Tuesday.

Three-year bond futures likewise shot up 11 ticks to a two-month top of 96.110.

Yields on 10-year bonds hit 10-week lows at 4.299%, having dived 17 basis points.

Investors have gone even more dovish on New Zealand, fully pricing in a first rate cut in August next year and a total easing of 39 basis points for 2024.

That outlook flies in the face of the Reserve Bank of New Zealand (RBNZ) which last week warned it might have to hike again and there would no cuts at all next year.


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