Australian dollar strengthens against kiwi and euro amid political concerns
The Australian dollar maintained its position against the US dollar on Tuesday, benefiting from strength against the New Zealand dollar and euro. The Aussie climbed 0.3% overnight to $0.6968, recovering from a 13-week low of $0.6904. Key resistance is seen around $0.7010, with major support at $0.6867.
The currency received indirect support from euro selling, driven by political concerns, pushing the single currency to its lowest level since late 2024 at A$1.6061. The Aussie also rose 0.6% against the kiwi to NZ$1.2464, nearing a recent peak of NZ$1.2488.
Yields on Australian 10-year bonds rose near 15-year highs to 5.408%, but outperformed US Treasuries, with the spread narrowing to 10 basis points from 39 a month earlier. Australia’s government deficit and debt are significantly lower than US levels, attracting demand from central banks looking to diversify from Treasuries.
The Reserve Bank of Australia has raised interest rates to 4.60%, and markets speculate on a potential hike to 4.85% early next year if inflation does not cool as expected. Consumer sentiment has been weakened by steep losses in house prices and the recent rate hike.
The New Zealand dollar was stuck at $0.5598, after touching a 10-month low of $0.5581. A survey showed 43% of firms expect business conditions to improve, but current activity measures were softer, leaving investors uncertain about the Reserve Bank of New Zealand’s next move. Swaps suggest a 58% chance of a rate hike to 3.0% at the October 28 meeting.