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AUDNZD: Daily Analysis & Outlook

The Australian and New Zealand dollars were heading for a fifth session of losses on Friday as a spike in Treasury yields pressured bond markets at home and risk sentiment globally. A hawkish-sounding policy outlook from the Reserve Bank of Australia (RBA) offered the Aussie little support as investors are still pricing in scant chance of an actual hike in rates until February at the earliest. Their U.S. counterpart got a lift from a rate warning by the head of the Federal Reserve, along with a poor 30-year U.S. bond auction which sent Treasury yields sharply higher. The RBA was also cautioning about upside risks to inflation as it revised up forecasts for both consumer prices and economic growth over the next two years. Yet futures still imply only around an 8% chance of another rate hike in December, following this week’s increase to a 12-year top of 4.35%. The probability then rises to nearly 50% for the following policy meeting in February.

“There’s a possibility of a hike in February after the Q4 inflation print, especially given that the RBA’s forecasts show inflation remaining very close to 4% even until mid-2024,” said Rahul Bajoria, an economist at Barclays. “The relatively better forecasts on growth and unemployment suggest that cash rates will also be kept higher for longer.”

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