THE Australian dollar fell back against a strong US dollar on Thursday but held at 17-year highs on the battered yen, while domestic bonds were hammered by risks of a rate hike this year.
The Aussie also jumped on the kiwi to the highest in a month as the rate outlook for their respective central banks diverged. Markets are still betting interest rates in New Zealand will be lower this year.
The Aussie was fetching US$0.6648, having given back all of its post-CPI gains overnight to hold steady in the face of a rising US dollar. It, however, firmed on a number of crosses, hitting a fresh 17-year high of 106.98 yen and a one-year top on the euro.
Bonds, which already sold off on the hot Australian inflation report for May, took another beating on Thursday as Treasury yields jumped overnight, helping the US dollar broadly.
Three-year government bond futures slid another 10 ticks and broke major support to trade at 95.83, the lowest in seven months. They fell 28 ticks in the past two days, the biggest two-day fall since September 2022.
Swaps are implying a 42 per cent chance of a quarter-point rate hike from the Reserve Bank of Australia in August, depending on the outcome of the full second quarter CPI report due at the end of July. The prospects of any rate cuts are gone for this year.
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Citi on Thursday joined Deutsche Bank and UBS in calling for an August hike in the current 4.35 per cent cash rate.
“The RBA is now in serious risk of not hitting its inflation target by the end of 2025,” said economists at Citi in a note to clients. “Risks are tilted towards another hike if inflation doesn’t behave.”
RBA Deputy Governor Andrew Hauser will deliver a speech at 7.30 pm local time (0930 GMT), which will be closely watched for any mention of a rate hike, given the central bank has held policy steady for five straight meetings now.
The kiwi slipped 0.1 per cent on Thursday to US$0.6078, the lowest in 1-1/2 months, in part due to the weakness against its Australian cousin. It fell 0.6 per cent overnight, with support now at US$0.604/5.
The kiwi lost 0.7 per cent overnight on the Aussie, the biggest daily drop since December last year. REUTERS
