Australian, NZ dollars set for best week in months as local yields lend support

SYDNEY: The Australian and New Zealand dollars were set for solid weekly gains on Friday as markets bet the policy easing cycles in both countries could be over while the Federal Reserve is widely expected to cut rates next month.

The Aussie steadied at $0.6536 but was headed for a weekly gain of 1.2%, the biggest since early September.

It faces resistance at the 55-day moving average of $0.6542 while support is solid at $0.6464.

The kiwi was also flat at $0.5728, after rallying 0.5% overnight. It was set for a weekly rise of 2.1%, the best since April.

The Aussie and kiwi have been the big gainers this week among G10 currencies.

The Reserve Bank of New Zealand cut interest rates by 25 basis points to 2.25% on Wednesday but flagged it is now done easing, sending the kiwi and New Zealand yields sharply higher.

Two-year New Zealand yields jumped 25 basis points this week to 3.188%, the highest since August.

Swaps are pricing in almost two rate hikes by the end of next year.

“Combined with a softer USD backdrop, investors re-rated the NZD higher and began unwinding short NZD positions,” said Philip Wee, a senior FX strategist at DBS.

“NZD/USD has scope to extend its recovery to 0.58, reversing the decline since late October.”

In Australia, a hot inflation reading has sealed the case that the Reserve Bank of Australia’s current policy easing is now over after three rate cuts, with some economists predicting that the next move could be up rather than down.

Australia’s 10-year yields jumped 22 basis points this month to 4.531%, some 52 basis points above their US counterparts, the widest since 2022.

Data on Friday showed Australia’s private credit rose 0.7% in October from a month earlier, picking up from September’s 0.6%, suggesting financial conditions may not be that restrictive.

Swaps imply little chance that the RBA will cut rates again next year, while there is a split chance of a hike coming around the end of 2026.