Australian and NZ Dollars Hold Near Multi-Month Highs Amid Global Bond Selloff

The Australian and New Zealand dollars are hovering near multi-month highs as investors remain cautious due to a global selloff in bonds. The selling across debt markets has pushed Australian 10-year bond yields up 9 basis points to 5.166%, the highest level in five months.

Treasury yields are also affected, leading the rout on concerns about US budget deficits and debt levels. Local markets have come under pressure from expectations that interest rates may need to remain higher for longer to tame inflation.

The Reserve Bank of Australia (RBA) is expected to hike rates a quarter point to 4.60% at its meeting on September 29, with the market implying a 54% chance. There's even a 40% probability of a further move to 4.85%, indicating a hawkish outlook.

Despite data showing the economy hit the brakes in the second quarter, core inflation remains stuck at 3.6%. Analysts forecast a meagre 0.3% rise in GDP for the quarter, with annual growth slowing to 1.8% from 2.5%. The RBA has no easy choices from here, according to Paul Bloxham, head of Australian economics at HSBC.