Kiwi hits three-week high on rate hike bets, Aussie laggard

SYDNEY: The kiwi dollar hit a three-week high on Friday as markets wagered policy tightening in New Zealand has further to run, which helped extend its out performance of the Aussie to a second straight week.

The kiwi climbed 0.4% on Friday to $0.5778, a three-week high, after jumping 1% overnight.

That helped it manage a solid gain of 1.2% for the week, moving away from a seven-month trough of $0.5627.

That was partly due to gains against the Aussie, which lost 0.3% on Friday to a six-week low of NZ$1.2024.

It is now down 1% this week, breaking key support at NZ$1.2050 and well off its 13-year peak of $1.2282 hit in late May.

“Investors appear increasingly confident that AUD/NZ looks to have peaked for the cycle,” said Sally Auld, group chief economist at the National Australia Bank.

The Reserve Bank of New Zealand lifted interest rates for the first time in over three years on Wednesday to ward off inflation risks, adding that further rate increases were likely for upcoming meetings.

Governor Anna Breman told local media on Thursday that the latest flare-up of tensions in the Middle East reinforced concerns that inflation could become embedded.

The hawkish comments partly explained why markets are wagering on a 73% chance the RBNZ could deliver a follow-up hike in September, with about 48 basis points of total tightening priced in by the year end.

In contrast, investors suspect the Reserve Bank of Australia could be done hiking after three rate rises to 4.35%, with a further move this year just seen at around 50%.

The shifting rate outlook had the Aussie steady at $0.6946 on Friday, having edged up 0.2% overnight.

It is set for a flat week despite the latest escalation in the Middle East conflict.