SYDNEY: The Australian dollar is headed for solid weekly gains on the Japanese yen and New Zealand’s kiwi, although it retreated against the US dollar as strong data there lessened the odds of another outsized Federal Reserve interest rate cut.
The Aussie was enjoying the view at 100.5 yen, having rallied 2.5% so far this week and cleared a major hurdle at 99.85 yen.
The Japanese currency has been pressured broadly as investors pared back the chance of another rate hike from the Bank of Japan this year.
Against the dollar, the Aussie was, however, 0.8% lower this week at $0.6848, with support now around $0.6820 and $0.6800.
The kiwi dollar trailed badly at $0.6213, down 2% in the week on the prospects of sharply lower interest rates.
The next level of support is around $0.6170/80. Nomura is the latest to join a rising number of banks that called for a half-point reduction when the Reserve Bank of New Zealand (RBNZ) meets on Oct. 9.
The RBNZ started its easing cycle with a 25 basis point cut in August. “With fiscal policy unlikely to come to the rescue, the economy experiencing recession-like conditions and inflation at risk of falling into the lower half of the target range, expansionary monetary settings may well be needed,” said Andrew Ticehurst, a rate strategist at Nomura.
Australia dollar hampered by risk aversion, kiwi by rate calls
“We think the best reaction function is for the RBNZ to aggressively return the cash rate to near neutral settings as quickly as possible.”
That is one reason that the Aussie also climbed 1.2% this week on the kiwi to NZ$1.1022, the highest in more than six weeks, as the rate outlook in the two Antipodean countries diverge.
Markets are now about fully priced for two half-point rate cuts at the two remaining RBNZ meetings while the Reserve Bank of Australia (RBA) is seen moving glacially, with the chance of a first cut in December at just 67%.
Next up, traders are awaiting US non-farm payrolls data due later on Friday, and the risk is now on the upside as the unexpectedly robust expansion in the services sector added to a slew of strong data this week.
That had traders scale back the chance of another 50 basis point rate cut from the Federal Reserve to 32.8%, compared with about 60% a week ago, CME FedWatch tool showed.
American Dollar Exchange Rate