SYDNEY: The Australian dollar held near a six-month high on the sterling on Thursday, while bond futures jumped to the highest level since early June as a surprisingly low reading on UK inflation reinforced bets of early and aggressive global policy easing.

The Aussie hovered at £0.5334, after hitting a six-month top of £0.5355 overnight as the pound tumbled across the board.

A sharp easing in British inflation to the lowest level in over two years in November led markets to fully price in a rate cut in May next year.

Two-year gilt yields - which are sensitive to market interest rate expectations - tumbled more than 19 basis points, fuelling a global bond rally.

Australia’s three-year bond futures climbed 8 basis points to 96.41, the highest since early June.

“One thing we’ve often heard recently is that UK inflation is stickier and therefore that implies slower/later rate cuts relative to the eurozone,” said James Smith, developed markets economist at ING.

“We don’t expect the UK to be an outlier when it comes to the extent of policy easing.”

With disinflation in full swings overseas, swaps have moved to price in two quarter-point rate cuts from the Reserve Bank of Australia by the end of next year and at least three reductions from the Reserve Bank of New Zealand.

Australian dollar jumps, bonds slump on risk of rate rise

On Thursday, the Aussie was fetching $0.6735, off its five-month peak of $0.6779 as the US dollar climbed and equities sold off.

The kiwi dollar was changing hands at $0.6257, after retreating overnight from a five-month top of $0.6298.

Traders are awaiting the US Personal Consumption Expenditures (PCE) due on Friday, which is forecast by analysts to rise 0.2% in November with the annual inflation rate slowing to its lowest level since 2021 at 3.3%.