Australia, NZ dollars buffeted by swings in commodity prices

The Australian and New Zealand dollars steadied on Tuesday as precious metals from gold to silver halted their startling slides that rocked holiday-thinned markets, while prospects of lower US interest rates brighten their outlook.

The Aussie rose 0.15% to $0.6702, having retreated from a 14-month top of $0.6727 overnight to finish the day 0.3% lower.

That dealt a setback to the recent upward momentum but the Antipodean is still poised to gain 8.3% for the year. The kiwi rose 0.1% to $0.5807, after falling 0.4% overnight in the third straight session of declines.

It faces resistance at the recent top of $0.5853, while support is around $0.5740.

Liquidity across most markets is thin in a holiday-shortened week, which exacerbated volatile price swings in silver and other precious metals overnight.

After hitting a new record of about $84 per ounce, silver slumped 8.7% in the biggest one-day fall since August 2020, bringing gold and copper down with it.

Continued gains across commodities, especially gold and copper - both of which are major export earners for Australia - have supported the Australian dollar.

Prices for gold bounced 0.8% on Tuesday, after losing 4.4% overnight.

Silver also rebounded 3%.

“The fundamental story for precious metals is a strong one.”

Looking ahead to the next year, the Australian dollar is expected to get some boost from the diverging interest rate outlooks at home and abroad.

Two of Australia’s big four banks are calling for a rate hike from the Reserve Bank of Australia in February after three cuts this year to 3.6%.

The risk of higher rates pummelled Australian bonds for a second straight year, with three-year government bond futures down 40 ticks to 95.80.

That equates to yield of 4.2%, almost 70 basis points above the comparable US yield.

In the US, markets are pricing in a total of 61 basis points of policy easing from the Federal Reserve next year compared with an expected 36 bps of tightening by the RBA.

Across the Tasman Sea, the Reserve Bank of New Zealand is widely expected to be on hold throughout the first half of next year, but the risk to rates is tilted upward with a total tightening of 38 bps priced in for 2026.