The Australian and New Zealand dollars gained a reprieve from selling pressure on Friday after a soft report on US job applications caused a sudden decline in their US counterpart.
Analysts suspected the surge in demands was partly a statistical error, but it was enough to push down Treasury yields and the dollar.
This lifted the Aussie to $0.6612, up from its low of $0.6566 reached early Thursday. It still remains below major resistance at $0.6650, which has constrained the currency since January.
The Kiwi dollar held steady at $0.6035, after rebounding 0.5% overnight. Support lies around $0.5982, with resistance at the recent high $0.6050.
The Aussie also hit a four-month high against the pound sterling after the Bank of England (BoE) opened the door to rate cuts as early as June and noted the policy may ultimately have to be relaxed even more than the markets expected.
The Australian dollar thus reached 0.5287 pounds sterling, compared to 0.5175 at the beginning of May.
Markets now believe there is a 50/50 chance the BoE will cut interest rates in June and are almost ready for August. They also estimate that there is an 88% chance that the European Central Bank will ease monetary policy in June, while the Federal Reserve is expected to do so in September.
As for Australia, the persistence of domestic inflation has led the market to dismiss any prospect of a reduction this year, and even a 27% chance that the next move will be upwards.
The head of the Reserve Bank of Australia (RBA) said this week she hoped rates would not have to rise again, but offered little prospect of easing either.
One constraint for the central bank is that fiscal policy is expected to be slightly expansive in the coming year, largely due to a significant income tax cut scheduled for July 1.
The Labor government releases its 2024/25 budget next week and is under pressure to deliver more cost of living relief, likely in the form of energy rebates.
“Income tax cuts will boost consumer spending and support inflation,” said Paul Bloxham, head of Australian economics at HSBC. “Furthermore, with the federal election expected in mid-2025, the temptation to spend more will be great.
“We expect fiscal policy to boost growth, but also inflation in 2024/25,” he added. “Fiscal policy could be yet another reason for the RBA to keep its Bank Rate higher for longer. (Reporting by Wayne Cole, Editing by Shri Navaratnam)
