Australia, NZ dollars edge up as Fed faces scepticism By Wayne Cole

SYDNEY: The Australian and New Zealand dollars edged higher on Thursday as investors reconsidered whether US interest rates — long expected to rise this year — would actually do so, even as inflation worries slugged the Treasury market.

After leaving rates steady on Wednesday, Federal Reserve Chair Kevin Warsh dodged questions about what the central bank would do to ensure inflation cooled, leading to a sharp rise in long-term yields.

“Markets were left unconvinced, with the 10-year bond yield climbing to a near one-year high and the US dollar index slipping,” said Kerry Craig, global market strategist at J.P. Morgan Asset Management.

“The Fed is likely to face ongoing questions around its credibility,” he added.

“A new chair faces a divided committee and a bond market that’s starting to question the central bank’s resolve.” The resulting dip in the greenback nudged the Aussie up 0.1% to $0.6960, and away from an overnight low of $0.69225. Resistance stands at $0.6989 and $0.7026.

The kiwi dollar firmed 0.2% to $0.5806, recovering from an overnight trough of $0.5762. It faces resistance at $0.5826 and $0.5873.

The Aussie needed the support as a benign inflation report out on Wednesday had seen investors scale back wagers for a rate rise at home.

Markets imply next to no chance the Reserve Bank of Australia will hike at its August meeting and is 50-50 on whether a move will come by December.

Andrew Boak, head of Australian economics at Goldman Sachs, said the miss on inflation meant he no longer expected one final rate rise next month.

“The material downside surprise relative to expectations shifts the balance of risks towards the RBA remaining on hold at 4.35% in August and for the remainder of 2026,” he wrote in a note.

“On balance, we continue to expect the RBA to “normalise” policy settings via a gradual easing cycle in 2027, with three 25bp reductions to 3.60%, commencing in February.”

Markets are not nearly as dovish, pricing no easing at all over next year.

For the Reserve Bank of New Zealand, markets imply a 90% chance it will hike the 2.5% cash rate in September, encouraged in part by an upbeat report on businesses confidence out on Thursday.

The ANZ survey found a net 56.1% of respondents expected the economy to improve over the year ahead, up from 36.6% in June.