Australia dollar notches another top, momentum on its side

SYDNEY: The Australian dollar eked out its fifth-straight high for the year on Tuesday as the outlook for interest rate and yield spreads shifted in its favour, while technical momentum remained bullish.

The Aussie was steady at $0.6667, having earlier edged up to a fresh 10-month top of $0.6677.

It was now within a whisker of the next chart barrier at $0.6687 and a break would clear the way to $0.6793 and last year’s peak of $0.6943.

It was also well placed at 98.25 yen, after reaching an eight-month peak last week, and looked set to test tops from last January at 98.82 and 99.15.

“AUD finally broke its shackles over the last week, showcasing more emphatic and satisfying forward momentum,” said Richard Franulovich, head of FX strategy at Westpac.

“Political & fiscal upheaval in Tokyo, Paris and London are periodically challenging EUR, JPY & GBP prospects, while shaky labour market/growth momentum stories are periodically capping CAD, USD & NZD,” he added.

“AUD has the look of a genuine safe harbour on these metrics.” Recent economic data at home have been generally upbeat, with the economy growing at the fastest pace in almost two years last quarter as consumer spending responded to lower borrowing costs.

The pickup was acknowledged by Reserve Bank of Australia Assistant Governor Sarah Hunter on Tuesday, who saw the economy as being near full employment with inflation near target.

That is one reason markets imply just a 20% chance the RBA will cut rates again at its next meeting on September 30, assuming it will pause until the following meeting in November when more inflation data will be available.

Futures imply another 50 basis points of easing in all to take rates to 3.10%.

In contrast, markets are pricing in a further 125 basis points of easing from the US Federal Reserve, with a cut possible at each of its five next meetings.

The divergence has seen Australian 10-year bond yields swing to pay 20 basis points more than Treasuries, compared to 20 basis points less a couple of months ago.

The kiwi dollar continued to lag at $0.5960, having stalled short of last week’s top of $0.5979.

New Zealand’s central bank is expected to cut rates by a quarter point to 2.75% in October, and reach 2.5% by early next year.