THE Australian and New Zealand dollars were ending the week on the defensive on Friday as upbeat economic data lifted their US counterpart, while debt markets further lengthened the odds on early rate cuts at home.
The Aussie faded to US$0.6596, having failed to hold a key US$0.6650 chart level. That left it down 1.3 per cent for the week and well away from the recent four-month top of US$0.6714. Support now lies in the US$0.6560/6580 zone.
The kiwi dollar held at US$0.6095, having eased 0.6 per cent for the week and off a two-month high of US$0.6152. It has support at US$0.6084 and US$0.6041.
The kiwi has been underpinned by a hawkish shift in outlook from the Reserve Bank of New Zealand (RBNZ) which forced markets to sharply scale back expectations for rate cuts.
The probability of an October easing has collapsed to just 28 per cent, from 84 per cent early in the week, while a cut in the 5.5 per cent cash rate is now not fully priced in until April next year.
“The Bank did send a rather clear signal that it does not intend to deliver rate cuts this year,” said Prashant Newnaha, a senior Asia-Pacific rates strategist at TD Securities.
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“We stick to our call for the first RBNZ cut to be delivered at its May 25 meeting.”
The hawkish turn has seen key two-year swap rates surge 22 basis points in just two sessions to reach 5.095 per cent. Yields on 10-year bonds climbed 17 basis points to 4.808 per cent.
That has attracted more carry demand as investors borrow yen at low rates to invest in the higher yielding kiwi, sending it flying to a 17-year peak of 96.11 yen.
The Aussie has also lost ground to the kiwi, sliding 0.8 per cent for the week and reaching a two-month low of NZ$1.0809.
Markets have likewise pushed out the likely timing of policy easing from the Reserve Bank of Australia (RBA), and even have a small chance the next move will be a hike.
Futures imply a limited chance of a cut until April next year, and a quarter-point move is not fully priced until July.
Much will depend on whether domestic inflation proves sticky, underling the importance of the monthly April consumer price report due next week.
Analysts at Goldman Sachs expect a rise of 0.3 per cent for the month, a step down from 0.7 per cent in March. That would see the annual pace slow to its lowest since late 2021 at 3.2 per cent, and closer to the RBA’s 2-3 per cent target band. REUTERS