SYDNEY, Oct 21 (Reuters) – The Australian and New Zealand dollars were on steadier footing on Tuesday as an improvement in global risk sentiment supported the two trade-exposed currencies and helped offset shrinking yield spreads.
The kiwi’s yield buffer is down to almost nothing as investors have fully priced a quarter-point rate cut from the Reserve Bank of New Zealand in November, and even a chance of another 50 basis points.
“We suspect the RBNZ will be tossing up between a final cut in 2025 of either 25 or 50 basis points,” said Satish Ranchhod, an economist at Westpac. “We assess the chance of a 50bp cut as lying in the 30-35% range.”
While data out on Monday showed headline consumer prices rising at a 3.0% pace, most of that was due to gains in government administered costs, electricity and food.
The RBNZ’s own favoured measure of inflation held at 2.7%, the lowest since early 2021, while various core measures were also benign.
“We expect inflation will return comfortably inside the RBNZ’s 1% to 3% target band next year,” Ranchhod added. “As a nation we’re continuing to operate with a sizeable amount of excess capacity, with related softness in retail spending.”
As a result, yields on 10-year bonds have slid 18 basis points so far this month to 4.028%, putting them just 4 basis points above Treasuries and lessening their attractiveness as carry trades.
Australian 10-year yields have dropped 20 basis points in the same time frame, but trade at a slightly more ample 14 basis points over U.S. debt.
Still, markets currently assume both the RBNZ and Reserve Bank of Australia are close to the end of their easing cycles, while pricing in another five cuts from the Federal Reserve.
For now, the kiwi was up a shade at $0.5750, after rising 0.3% the previous session. Near-term resistance lies at $0.5755 and $0.5769, with support at the recent trough of $0.5684.
The Aussie was 0.2% firmer at $0.6522, having also bounced 0.3% overnight to near resistance around $0.6535. A break would open the way to $0.6570 and $0.6628, while major support is down at $0.6438.
Sentiment was supported at the margin by news U.S. President Donald Trump and Australian Prime Minister Anthony Albanese signed a critical minerals agreement aimed at countering China, which could see billions of dollars invested in local mines. (Reporting by Wayne Cole; Editing by Sam Holmes)
