The Australian dollar fell again against the strong U.S. dollar on Thursday but remained at 17-year highs against the weakened yen, even as domestic bonds were affected by concerns of a potential interest rate hike this year.
The Aussie also rose against the kiwi to a one-month high as the projected interest rate policies of their respective central banks diverged. Markets are still speculating on lower interest rates in New Zealand this year.
The Aussie, trading at $0.6648, gave back its post-CPI gains overnight to remain steady against the rising U.S. dollar. However, it strengthened against other currencies, reaching a new 17-year high of 106.98 yen and a one-year high against the euro.
Bonds, which were already affected by the recent Australian inflation report for May, experienced further declines on Thursday as Treasury yields surged overnight, providing broad support for the U.S. dollar.
Three-year government bond futures slid another 10 ticks and broke key support to trade at 95.83, the lowest level in seven months. They fell 28 ticks over the past two days, marking the largest two-day drop since September 2022.
Market swaps suggest a 42% chance of a quarter-point interest rate hike from the Reserve Bank of Australia in August, contingent on the outcome of the full second-quarter CPI report due at the end of July. The possibility of any rate cuts for this year has diminished.
On Thursday, Citi, joining Deutsche Bank and UBS, called for an August hike from the current 4.35% cash rate.
“The RBA is now at significant risk of not meeting its inflation target by the end of 2025,” noted economists at Citi in a client update. “The risk is biased towards another hike if inflation does not behave.”
RBA Deputy Governor Andrew Hauser will deliver a speech at 7:30 pm local time (0930 GMT) that will be closely monitored for any mention of a potential rate hike, as the central bank has maintained its policy unchanged for five consecutive meetings.
The kiwi slipped 0.1% on Thursday to $0.6078, the lowest in a month and a half, partly due to the weakness against its Australian counterpart. It fell 0.6% overnight, with support now at $0.6040/50.
The kiwi lost 0.7% compared to the Aussie, marking the largest daily decline since December of last year.
looking at the technicals of AUD, we can vividly see that the USD CPI had a great impact on the Aussie dollar yesterday, despite the Aussie dollar gaining back this morning the structure still looks bearish as to what the data has printed. RBA Deputy Governor Andrew Hause will speak in the next 30 mintues GMT. He’s responsible for advising Reserve Bank Board members – who decide where to set the nation’s key interest rates – on matters relating to economics, and his public engagements are often used to drop subtle clues regarding future policy shifts.
This news releasd does not have a high impact but we’ll see how price will react.
