Currency Support
The Australian and New Zealand dollars showed resilience, buoyed by an improved global risk sentiment that offset concerns about shrinking yield spreads. Despite expectations of a Reserve Bank of New Zealand rate cut, possibly by 25 or even 50 basis points in November due to benign inflation, both currencies held steady. The RBNZ’s favoured inflation measure hit a two-year low, signalling ample economic capacity. Yields on 10-year bonds have fallen, narrowing the gap with US Treasuries. However, markets anticipate both central banks are nearing the end of their easing cycles, contrasting with further expected Federal Reserve cuts.
The resilience of the Australian and New Zealand dollars, despite differing domestic monetary policy outlooks, highlights the significant influence of global risk sentiment on trade-exposed currencies. While both nations face shrinking yield differentials with the U.S., a key factor for carry trades, the market’s perception that their respective central banks are nearing the end of easing cycles provides a floor. The RBNZ’s proactive stance on inflation, potentially involving further New Zealand dollar rate cuts, contrasts with the RBA’s slightly more ample yield spread over U.S. debt, offering a better buffer for the Australian dollar. This suggests that while both are sensitive to global shifts, Australia might retain a marginal attractiveness due to its relatively higher yield buffer. The critical minerals agreement between the U.S. and Australia also offers a unique, albeit marginal, boost for the AUD, separating its drivers somewhat from the NZD in the currency market analysis.
| Currency/Bond | 10-Year Yield Change (MTD) | Spread vs. US Treasuries | Current USD Value |
|---|---|---|---|
| New Zealand | -18 bps | 4 bps | $0.5750 |
| Australia | -20 bps | 14 bps | $0.6522 |
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