Australian and New Zealand Dollars Hit Fresh Highs Against Yen as Yields Draw

Australian and New Zealand Dollars Hit Fresh Highs Against Yen as Yields Draw
Australian and New Zealand Dollars Hit Fresh Highs Against Yen as Yields Draw

The Australian and New Zealand dollars celebrated fresh highs against the yen on Tuesday as relatively high yields attracted a steady flow of carry trades, while most other crosses remained stagnant.

With the US dollar stuck at 160.00 yen due to the threat of Japanese intervention, investors were shorting other major currencies offering relatively high yields.

This took the Aussie up to 106.38, giving it a 7.6% gain for the quarter. A break of the 2007 high at 107.84 would take it to levels not seen since late 1991.

The kiwi dollar hit its highest level since 1986 at 97.93 yen, having risen almost 8% in the quarter.

Flows into the yen helped lift the Australian dollar to $0.6655, from Monday’s low of $0.6627. Strong resistance lies around $0.6679 and $0.6714.

The kiwi was flat at $0.6120, trapped between the resistance at $0.6148 and the support at $0.6098.

A hawkish policy outlook from the Reserve Bank of Australia (RBA) has supported the Aussie, with markets pricing in just a one in four chance of a rate cut this year and just 43 basis points of easing until the end of 2025. .

Risks will be refined by May consumer price data due on Wednesday, where a high result could well lead markets to price in a greater probability of a rate hike.

According to the median forecast, the annual pace of inflation rebounded to 3.8% in May, from 3.6% in April, partly due to base effects, as the index suffered a large monthly drop last year.

April’s CPI had already surprised to the upside, suggesting that inflation for the entire second quarter could exceed the RBA’s forecast of 3.8% for both the headline and underlying measures.

“Our baseline assumption remains that slow economic growth will give the RBA enough confidence in the prospects for further inflation to stay on hold, but the near-term risk is on the upside,” said Taylor Nugent, NAB Senior Economist.

“NAB has long anticipated a first cut in November, but the absence of genuine progress on domestically sensitive prices this quarter would further skew the risk to maintaining it for longer.”

Markets are not as hawkish on New Zealand, where a first rate cut is fully planned for November and more than 130 basis points of implied easing through the end of 2025. (Reporting by Wayne Cole; Editing by Jamie Freed)

 
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