SYDNEY: The Australian and New Zealand dollars were headed for a second week of losses as the greenback found support from solid US data that prompted investors to pare back wagers of more policy easing there.
However, the Aussie fared way better against the kiwi, up 0.8% in the week to hit three-year highs at NZ$1.1350, as a high monthly inflation reading had a number of analysts tip an end to the current policy easing cycle.
In contrast, interest rates in New Zealand are set to go lower after a run of dismal data.
Against the US dollar, the Aussie was little changed at $0.6538 on Friday, having shed 0.6% overnight to a three-week low of $0.6527.
It was headed for a weekly decline of 0.9% and back in the middle of the 64-66 cents trading range that it has held for most of the year.
The kiwi was lagging at $0.5767, the lowest since early April.
It slid 0.7% overnight to break a key support level at 58 cents, with bears now targetting $0.5730. All eyes are on the US personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred inflation measure, due on Friday.
An upside surprise would add to a run of strong economic data that could force investors to further pare bets for two more rate cuts this year.
“Not much has gone the kiwi’s way of late, but arguably, that also suggests that perhaps sentiment can’t get much worse,” said David Croy, a senior strategist at ANZ.
“Falling interest rates and market expectations for more RBNZ easing are an immediate challenge… But the kiwi has now come down a long way, and as we head into 2026, the economy should be on a firmer footing.”
Markets are fully priced for a quarter-point rate cut to 2.75% from the Reserve Bank of New Zealand next month, and a 25% risk it may even ease by 50 basis points.
Rates could now bottom at 2.25% given the need for aggressive stimulus.
Across the Tasman Sea, the Reserve Bank of Australia is seen firmly on hold next Tuesday, based on market pricing and a Reuters poll of economists.
However, a move in November is now priced at less than 50%, compared with fully priced a few weeks ago.
“We do not read either the August result (for inflation) or latest geopolitical developments as implying a renewed inflationary trend,” said Luci Ellis, chief economist at Westpac, affirming that she still sees the RBA cutting rates three more times in the cycle.
Australian government bonds have had a poor week as rate-cut bets shift, with the three-year bond yield up 15 basis points to a four-month high of 3.589%.
The 10-year government bond yield rose 14 bps to 4.383%.
American Dollar Exchange Rate