Dollar retreats, kiwi leaps as rate direction diverges

SINGAPORE: The dollar was on the back foot on Thursday, with trade thinned ahead of the U.S. Thanksgiving holiday and investors turning to the coming year where a series of US interest rate cuts are priced in.

The yen drifted 0.4% higher to 155.87 per dollar and the euro clambered above $1.16 in morning trade.

A resurgent New Zealand dollar skipped out to a three-week peak of $0.5714 following a hawkish shift at the central bank and strong economic data.

The Reserve Bank of New Zealand cut rates on Wednesday but said that a hold was discussed and flagged that the easing cycle was likely over, with markets shifting to price in an interest rate hike by December next year.

That contrasts with more than 90 basis points of cuts priced for the U.S. Federal Reserve between now and the end of 2026.

Data showed New Zealand retail sales rose in the third quarter, while business confidence jumped to its highest in a year.

“Kiwi green shoots are really starting to mushroom quite quickly now,” said Westpac strategist Imre Speizer.

The Australian dollar has also been gaining after a hotter-than-expected inflation reading on Wednesday added to the case that the easing cycle there is also finished.

Australia’s 10-year rate of 4.48% is the highest in the G10, which analysts point out makes the currency look cheap.

At $0.6526 the Aussie is in the middle of a channel where it has traded for about 18 months. Kit Juckes at Societe Generale, however, notes it has more closely tracked China’s yuan than interest rates lately - which could support further gains as the yuan has climbed sharply in recent sessions.

Pushback from China’s central bank fixing mechanism steadied the yuan at the open on Thursday.

Sterling inched up to its highest since late October at $1.3256 and was on course for the largest weekly rise since August as Britain’s budget alleviated some concerns about the national finances.

The U.S. dollar index was flat at 99.433, having retreated from a six-month high hit a week ago to head for its largest weekly drop since July.

“The market will soon be thinking about the big trades for 2026, and I strongly doubt that ‘long USD’ will be one of them,” said Spectra Markets’ President Brent Donnelly.

He said if White House economic adviser Kevin Hassett - an advocate for rate cuts - were appointed the next Federal Reserve chair it ought to be negative for the dollar.

“Once we get past Friday, all the corporate and real money USD demand is done.”