Australia and NZ dollars are on the ropes; bonds show some grit
TLT•The Australian dollar fell 1.6% for the week to $0.7010, while the New Zealand dollar dropped 1.2% to $0.5659. Markets priced in further rate rises from both central banks as US yields supported the greenback.
1. Currencies slide
The Australian dollar fell 0.4% overnight to a seven-week low of $0.7010, taking its weekly losses to 1.6%. The New Zealand dollar eased 0.2% to $0.5659, down 1.2% for the week and marking its fifth consecutive weekly decline.
2. Rate expectations rise
Markets saw the Reserve Bank of Australia as all but certain to raise its rate by 25 basis points to 4.60% on September 29, with a move to 4.85% priced by February. HSBC economist Paul Bloxham said he expected quarter-point increases in September and November, and said growth could nearly stall in the fourth quarter and first quarter, with a risk of recession.
3. Bonds outperform Treasuries
Australian bonds fell over the week but outperformed US debt, as 10-year yields rose to 5.408% and the spread over Treasuries narrowed to 22 basis points. Markets priced an 84% chance of a quarter-point Reserve Bank of New Zealand hike to 3.0% on October 28, with rates eventually reaching 4.0%.
