Key points:
- The Australian dollar bounces from three-month lows; resistance at $0.6580.
- Rate cut expectations influence bond rally, with key yields hitting lows.
The Australian dollar (AUDUSD) held at $0.6540, recovering from a three-month low of $0.6480 overnight. Support lies around $0.6466, with resistance at $0.6580.
Against the surging yen (AUDJPY), the Aussie lost 1.8% overnight, hitting its lowest since March at 97.35.
Kiwi dollar rebounds as RBA rate hike expectations diminish
The New Zealand dollar (NZDUSD) was up at $0.5954, rallying 0.8% from its recent three-month trough of $0.5859. Much of the kiwi’s move came as markets priced out any chance of a rate rise from the Reserve Bank of Australia (RBA) following favourable inflation data.
See: Kiwi trading at 0.59451 on the VT Markets app.
Markets now imply a small chance of a cut at the RBA’s August 6 meeting, compared to a 20% risk of a hike before the data.
They also suggest a 44% chance the 4.35% cash rate could be cut as early as November, while a quarter-point easing is priced at 76% for December.
Major banks adjust rate cut forecasts; bond yields drop to April lows
Among major banks, CBA also sees a first cut in November, while ANZ tips February and NAB expects May. The shift in outlook saw three-year bond futures (YTTc1) hit their highest since mid-April at 96.350, climbing 31 ticks in two sessions.
Yields on 10-year bonds (AU10Y) also fell to the lowest since April at 4.051%.
Fed’s dovish stance boosts expectations for early rate cuts
Dovish commentary from the U.S. Federal Reserve enhanced the prospect of earlier easing. Futures now price in an 11% chance the Fed could cut rates by as much as 50 basis points in September.
Across the Tasman, markets imply a 36% chance the Reserve Bank of New Zealand (RBNZ) could cut at its next meeting on August 14, and are fully priced for a move in October.
Key two-year swap rates touched their lowest since late 2022 at 4.13%.
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