Australia, New Zealand dollars at multi-month lows as yields buffers shrink
TLT•The Australian dollar fell 1.4% for the week to $0.6920, while the New Zealand dollar sat at an 11-month low of $0.5592. The Australian 10-year yield premium over Treasuries narrowed to a one-year low of 11 basis points.
1. Currencies near lows
The Australian and New Zealand dollars were pinned near multi-month lows as the U.S. dollar extended its gains. The Aussie was down 1.4% for the week at $0.6920 after touching a three-month low of $0.6904, while the kiwi was at $0.5592, its lowest in 11 months.
2. Australian rates outlook
Australian three-year yields fell 11 basis points on the week to 4.898% as investors reduced bets on an October rate hike. The Reserve Bank of Australia raised rates to a 15-year high of 4.6% on Tuesday, but markets put the probability of an October hike at 22% and a December move at 38%.
3. Yield premium narrows
Strong demand for Australian dollar-denominated bonds helped limit the impact of a Treasury rally, bringing the 10-year Australian yield premium to a one-year low of 11 basis points. That outperformance reduced the Aussie’s interest-rate buffer against the U.S. dollar.
