SYDNEY: The New Zealand dollar eased on Thursday as the government’s tight budget position reinforced the need for policy easing as soon as next week to fend off global risks, while its Australian cousin flatlined.
New Zealand’s government forecast a narrower budget deficit for the fiscal year ending June 30, 2025, as it focused on fiscal prudence even as the global tariff war is expected to dampen the trade-dependent country’s economic revival.
The kiwi dollar held on to earlier losses and was last down 0.3% at $0.5924.
It eked out a small gain of 0.2% overnight and has remained corralled within a range of $0.5847 to $0.6029 that has held for the past month.
Two-year swap rates fell 3 basis points to 3.1375% as the tight budget reinforced the case of more policy easing. Markets now imply rates reaching 2.83% by year-end, compared to 3.0% early in the week.
The Reserve Bank of New Zealand is widely expected to cut its Official Cash Rate (OCR) to 3.25% at a policy meeting next week on Wednesday.
“Assuming no surprise on the decision front, the RBNZ could nonetheless move the market considerably with what it chooses to publish for the forward track for the OCR,” said Sharon Zollner, chief economist at ANZ.
“Uncertainty is high.”
The Aussie was little changed at $0.6441, having edged up 0.2% overnight to a high of $0.6469.
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It has been trading within a narrow range of 64 to 65 cents for the past week or so.
Bond markets that have cheered the dovish tilt from the Reserve Bank of Australia this week came under pressure on Thursday as US yields kept rising on concerns about debt.
Three-year futures fell 4 ticks to 96.47 on Thursday, having hit a 10-day high of 96.59 overnight.
For the week, they are still up 12 ticks.
The Commonwealth Bank of Australia lifted on Wednesday its forecast for the Australian dollar to 70 cents in the second half of the year.
“While we are positive about AUD/USD in the medium term, we predict a volatile ride for AUD/USD… AUD/USD is vulnerable to sharp decreases in the next quarter or two if uncertainty increases again,” said Joseph Capurso, head of international economics at CBA.
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