Aussie Holds Near 13-Year High Amid Diverging Rate Outlooks

The Australian dollar is holding near its 13-year high against the New Zealand dollar due to diverging rate outlooks between the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ).

The Aussie slipped 0.1% to NZ$1.2227, having jumped 1% overnight to hit a 13-year peak of NZ$1.2285. This was largely due to sharp falls in the kiwi after a dovish rate hike from the RBNZ that had markets wagering on a policy hold next month.

Faraz Syed, an economist at Citi, said that their 'long standing dovish view' on the RBNZ remains unchanged. They believe 2.75% is terminal in this cycle and expect a slowdown in activity indicators over the coming weeks and months that will likely prevent the RBNZ from hiking further.

The Aussie also drew support from better-than-expected economic data that added to bets the RBA will raise interest rates a fourth time at its September 28-29 meeting, priced at 55% probability. Paul Bloxham, chief economist at HSBC, expects the RBA to hike twice this year to a terminal rate of 4.85%, arguing demand growth is still exceeding growth in the economy's supply capacity.