Australian Dollar Strengthens Amid Euro and Kiwi Weakness

The Australian dollar found some stability against the US dollar on Tuesday, gaining support from the weakness of the New Zealand dollar and the euro. The Aussie edged up 0.3% overnight to $0.6968, moving away from a 13-week low of $0.6904. Resistance is seen around $0.7010, with key support at $0.6867.

The currency benefited from euro selling, as political concerns pushed the single currency to its lowest level since late 2024 at A$1.6061. Against the New Zealand dollar, the Aussie climbed 0.6% to NZ$1.2464, nearing a recent peak of NZ$1.2488.

Australian 10-year bond yields rose near 15-year highs to 5.408%, but still outperformed US Treasuries, with the spread narrowing to 10 basis points from 39 a month earlier. Australia's government debt remains far below US levels, attracting demand from central banks looking to diversify away from Treasuries.

The Reserve Bank of Australia has raised interest rates to 4.60%, a full percentage point increase, to combat inflation. A recent survey showed that last week’s rate hike significantly hurt consumer sentiment, which had already been weakened by steep losses in house prices. Markets now expect the RBA to skip another hike in November but consider a move to 4.85% early next year if inflation does not cool as hoped.

The New Zealand dollar struggled, stuck at $0.5598 after touching a 10-month low of $0.5581. A quarterly survey showed that 43% of firms expect business conditions to improve, up from 8% the previous quarter. However, measures of current activity were softer, leaving investors uncertain about whether the Reserve Bank of New Zealand will raise rates at its October 28 meeting. Swaps imply a 58% chance of a quarter-point rise to 3.0%, with a move in December more than fully priced in.