SYDNEY: The Australian dollar was set for a strong weekly gain on Friday, buoyed by hawkish expectations for domestic interest rates, while the kiwi ended the week barely up as markets wagered on a string of rate cuts over the coming months.
The Aussie climbed another 0.2% to $0.6624, nearing a three-week top of $0.6643. It bounced 0.2% overnight to crack resistance at a major chart level of 66 cents.
That came despite a firm greenback as strong retail sales quelled recession fears and a tumble in iron ore prices, the biggest Australian export, due to soft demand in China.
For the week, the Aussie is up 0.8%, helped in part by a 2.5% gain on the Japanese yen, which has retraced all of its gains from the recent market sell-off.
Michele Bullock, Governor of the Reserve Bank of Australia, reiterated on Friday that it was premature to be thinking about rate cuts as underlying inflation remained too high.
Rates have been steady at 4.35% since November. That contrasted with a dovish stance from the Reserve Bank of New Zealand Governor Adrian Orr who flagged two more rate cuts by Christmas.
The diverging outlook has sent the Aussie to a two-week high on the kiwi at NZ$1.1055 on Friday.
“While it is still possible that the RBA board will change its mind, RBNZ-style, and pivot sooner…we suspect that fast backflips are not in the RBA’s breakdancing repertoire,” said Luci Ellis, chief economist at Westpac.
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Ellis tipped for a first cut in February next year. The kiwi dollar, which plunged after RBNZ’s decision to cut rates on Wednesday, recovered some of its posture on Friday and was last up 0.4% at $0.6008.
It is, however, set for a small gain of 0.2% for the week. Domestic yields rose on Friday, tracking the overnight movements in their US counterparts as recession fears dissipated after strong consumer spending.
Three-year Australia government bond yields jumped 7 basis points to 3.574%, although they are still set for a weekly drop of 9 bps.
Ten-years rose 5 bps to 3.925%, but are down 18 bps for the week.
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