Aussie And Kiwi Dollars Struggle Amid High US Yields
The Australian and New Zealand dollars are facing pressure at the start of the month due to stubbornly high US Treasury yields. This has made the US dollar more attractive, while local data hasn't provided much relief.
Currencies often move based on 'rate differentials' - the gap between what investors can earn on comparable government bonds in two countries. Currently, this gap is moving against Australia and New Zealand: Australia's 3-year yield advantage versus US Treasuries has swung from +27 basis points a month ago to about -1 basis point.
This shift weakens the 'carry' trade, where investors hold a higher-yielding currency to earn extra interest. With softer-than-expected Australian inflation cooling bets on another Reserve Bank of Australia hike, it's easier for global money to sit in US dollars without taking as much foreign-exchange risk.