Daily Fundamental Forecast AUD / USD and NZD / USD – Volatility in Australian bond market forces RBA to intervene

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The Australian and New Zealand dollars closed mixed on Friday while falling just below multi-month highs reached earlier in the week. The Aussie remained just below its weekly high at 0.7547, its best since July 6. The Kiwi was just below its week high at 0.7219, which was its highest level since June 8th.

On Friday, AUD / USD stood at 0.7468, up 0.0002 or + 0.03% and NZD / USD ended at 0.7151, down 0.0007 or -0, 10%.

Rising risk demand supporting the Aussie and Kiwi Rise

A weaker US dollar also helped support the Australian and New Zealand dollars. The greenback edged down on Friday, as news that heavily indebted real estate company China Evergrande Group had avoided a default spurred appetite for risky assets.

With global investors ignoring the prospect of a Federal Reserve cut in November and the prospect of a first US rate hike by next July throughout the week, the US dollar has become more sensitive to the feeling of risk. Australian and Kiwi investors, meanwhile, embraced the surge in demand for risky currencies.

“The winners tell us that risk sentiment is soaring, despite 10-year bond yields approaching April highs. If higher yields don’t hurt sentiment, then yields will continue to rise, ”said Kit Juckes, currency strategist at Societe Generale.

RBA takes action to defend its performance

The boost given to the Aussie by the Evergrande news was offset by action by the Reserve Bank of Australia to stem a bond sell-off, as well as the pause in the rise in prices of the energy.

The RBA said on Friday it stepped in to defend its return target for the first time in eight months, spending A $ 1 billion ($ 750 million) to cushion an aggressive bond sale, as traders bet on inflation leading to rate hikes.

The Reserve Bank must have stepped in as yields were rising too fast and unfounded if you think the central bank won’t make its first interest rate hike until 2024. Speculators were betting the RBA would take a step before that .

Strong consumer prices in Q3 should prompt RBNZ to raise rates more aggressively

New Zealand’s Consumer Price Index (CPI) rose 2.2% in the third quarter, beating expectations. The news helped the New Zealand dollar spike earlier in the week, with traders betting more central bank monetary policy tightening in response to higher than expected inflation.

The Reserve Bank (RBNZ) hiked rates earlier this month and announced further tightening ahead as it seeks to keep inflation near its target range of 1-3% and cool a real estate market boiling.


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