Australian dollar hovers near highs on many crosses, bonds rally

SYDNEY: The Australian dollar hovered near new highs on many crosses on Thursday, buoyed by the recent bullish run in commodities and prospects of rate rises at home.

Overnight, the Aussie hit a fresh 12-year top on the kiwi at NZ$1.1691 and scaled a new 17-month high on the yen at 105.93.

It also hit an eight-month peak on the euro at 0.5783 and a 14-month top on the Canadian dollar at 0.9345.

Against the US dollar, the Aussie was flat at $0.6720, having retreated from a 15-month peak of $0.6766 overnight as US stocks wobbled and local inflation readings surprised on the downside.

That helped local bonds rally on Thursday as markets pared back the chance of a rate hike from the Reserve Bank of Australia in February to about 28%, while taking out about 7 basis points of tightening for 2026 to 37 bps.

Comments from RBA Deputy Governor Andrew Hauser also helped.

In an interview with ABC, Hauser said the inflation slowdown was “helpful” but it was largely as expected, adding that core inflation in the fourth quarter was running just “a tiny bit” higher than what the RBA had forecast.

Ten-year government bond yields fell 10 bps to 4.656%, the lowest level in a month as investors bought Australian bonds and sold US Treasuries after the yield gap between the two stalled around 65 basis points in recent weeks.

Many analysts are sticking with their calls for more rate rises, arguing core inflation is still running too high.

Much depends on the fourth-quarter inflation report due on January 28.

“The pulse of underlying inflation remains stronger than is consistent with inflation at the midpoint of the RBA’s target,” said Taylor Nugent, a senior economist at the National Australia Bank. “NAB continues to pencil in a modest recalibration in policy to lean more firmly against inflation risks, pencilling in 25bp hikes in February and May.”

Also helping the Aussie are higher commodity prices such as gold and copper. Prices for iron ore, Australia’s biggest export, rallied to multi-month highs as China pledged to ease monetary policy to boost economic growth in the new year.

Across the Tasman Sea, the kiwi was little changed at $0.5770, after slipping for two straight sessions.

Resistance is at the recent top of $0.5810.

The Reserve Bank of New Zealand is widely expected to hold rates steady at 2.25% through the first half of the year, with a rate hike not fully priced in by October.