The Australian dollar fell against a strong US dollar on Thursday, but held at a 17-year high against a battered yen, while domestic bonds were hammered by risks of a rate rise. interest this year.
The Aussie also surged on the kiwi to its highest level in a month, as their respective central banks’ rate outlooks diverge. Markets are still betting on an interest rate cut in New Zealand this year.
The Australian dollar rose to $0.6648, after losing all its post-CPI gains overnight to remain steady against the rising US dollar. However, it strengthened on a number of currencies, hitting a new 17-year high of 106.98 yen and a one-year high on the euro.
Bonds, which had already been sold off following the release of Australia’s May inflation report, took another hit on Thursday as Treasury yields rose overnight, helping the rise in the US dollar.
Three-year government bond futures fell another 10 ticks and broke major support to trade at 95.83, the lowest in seven months. They have lost 28 ticks over the past two days, the biggest two-day drop since September 2022.
Swaps imply a 42% chance of a quarter-point rate hike by the Reserve Bank of Australia in August, based on the full second-quarter CPI report due in late July. The outlook for interest rate cuts has faded for this year.
On Thursday, Citi joined Deutsche Bank and UBS in calling for an August increase from the current rate of 4.35%.
“The RBA is now at serious risk of missing its inflation target by the end of 2025,” Citi economists said in a note to clients. “The risks are tilted towards a further rise if inflation does not behave well.
RBA Deputy Governor Andrew Hauser will deliver a speech at 7:30 p.m. local time (0930 GMT), which will be closely watched for any mention of a rate hike, given the central bank has kept policy unchanged for five back-to-back meetings now.
The kiwi slipped 0.1% on Thursday to $0.6078, the lowest in a month and a half, partly due to weakness against its Australian cousin. It fell 0.6% overnight, with support at $0.6040/50.
The kiwi lost 0.7% overnight against the Aussie, the biggest daily decline since December last year.
