Australian, New Zealand dollars hit five-week highs as Trump softens tone on China
THE Australian and New Zealand dollars blipped higher on Friday after President Donald Trump said he could get a deal with China and would rather not use tariffs, boosting currencies with a large trade exposure to the Asian giant.
China is Australia’s biggest export market and investors globally often use the Aussie as a liquid proxy for trade risks, recently selling it on fear of massive US tariffs.
Trump’s seemingly softer tone thus helped lift the Aussie 0.4 per cent to a five-week high at US$0.6312, breaking the former January top of US$0.6302 and leaving it 1.9 per cent higher on the week.
The kiwi dollar also added 0.4 per cent to a five-week high of US$0.5703, giving it gains of 2.2 per cent for the week.
The Aussie was also 1.5 per cent higher for the week on the Japanese yen at 98.34, though it did ease off highs after the Bank of Japan raised rates by 25 basis points to 0.5 per cent as expected and flagged more tightening to come.
Bond markets also had an upbeat week helped by a benign reading for New Zealand inflation. Yields on 10-year bonds eased to 4.673 per cent, from a peak of 4.888 per cent last week, as markets wagered on a half-point cut in the Reserve Bank of New Zealand’s 4.25 per cent cash rate.
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“Another 50bps cut at the 19-February meeting is a strong consensus view,” said Ray Attrill, head of FX strategy at NAB.
“Beyond that point the pace of easing is highly likely to slow, with no more than 25bps cuts at future meetings and a rising chance of a pause in the cutting cycle as inflation stabilises in the top half of the target range.”
Markets also imply around a 70 per cent chance the Reserve Bank of Australia (RBA) will make its first rate cut on Feb 18, lowering the 4.35 per cent cash rate by a quarter point.
Much, however, depends on the fourth-quarter consumer price report next week where analysts are hopeful the trimmed mean will rise by only 0.6 per cent, the smallest increase since mid-2021.
“We expect trimmed mean inflation to print at 0.5 per cent q/q, while the six-month annualised rate is forecast to fall to 2.6 per cent, around the middle of the RBA’s 2-3 per cent target band,” said Adam Boyton, head of Australian economics at ANZ.
“We think that a downside surprise to the RBA’s published forecasts of 0.7 per cent, in line with our expectations, will see the RBA cut in February.” REUTERS
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