Australia dollar carried away by rate view, scales 11-year top on yen
By Wayne Cole
SYDNEY, June 19 (Reuters) -The Australian and New Zealand dollars held firm on Wednesday as the outlook for steady interest rates at home attracted carry demand that lifted the Aussie to 11-year highs on the low-yielding Japanese yen.
A hawkish-sounding policy presentation from the Reserve Bank of Australia (RBA) on Tuesday led markets to scale back the probability of a rate cut this year to 36%, from 64% at the start of the week.
An easing is now considered unlikely until April next year, even as most other peer central banks have either started cutting or are close to. 0#RBAWATCH
"Our central case is that the RBA is going to remain patient, accepting that the disinflation process will take some time yet, with the trade-off being that they maintain more of the gains in the jobs market than otherwise," said Paul Bloxham, chief economist Australia at HSBC.
"We see the RBA on hold, with its first cut not delivered until Q2 2025," he added. "That said, we see more chance of the cash rate being increased further in the second half of 2024, than of it being cut. We ascribe a 30% chance to a 25bp hike."
The prospect of a long period of steady policy and low volatility in rates is attractive for carry trades, mainly borrowing in yen at low rates to buy Aussie.
Those flows helped lift the Aussie 0.7% overnight to reach 105.19 yen AUDJPY=. The next target is a peak from 2013 of 105.43, and a break there would take it to ground not trod since 2007 when it got as high as 107.84.
The Aussie also firmed to $0.6661 AUD=D3, and away from a low of $0.6586 hit at the start of the week. Stiff resistance looms at $0.6705.
The kiwi dollar lagged a little at $0.6140 NZD=D3, having bounced from support at $0.6098 overnight.
Markets are somewhat more dovish on the Reserve Bank of New Zealand (RBNZ), implying a 50% chance of a cut as early as October and better than 100% for November. 0#RBNZWATCH
The central bank's chief economist on Wednesday said there were reasons to think inflation could prove more persistent in the near term, but also that it might ease faster than expected over the medium term.
His conclusion remained that a "period of restrictive policy" was needed to bring inflation to heel.
Figures on gross domestic product (GDP) are due on Thursday and are forecast to show the economy grew a slim 0.1% in the March quarter, following two straight quarters of contraction.
Reporting by Wayne Cole
Editing by Shri Navaratnam
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