The Australian dollar held near a 13-year high against the New Zealand dollar, trading at NZ$1.2227 according to Reuters data, as foreign exchange markets priced in diverging monetary policy paths between the Reserve Bank of Australia and the Reserve Bank of New Zealand. Both currencies simultaneously slipped against a surging Japanese yen amid suspected currency market intervention by Japanese authorities.
RBA Rate Hike Expectations Support the Aussie
The Australian currency drew solid backing from stronger-than-expected economic indicators. According to Reuters, these reports boosted market odds to 55 per cent that the Reserve Bank of Australia will raise interest rates a fourth time during its Sep 28-29 meeting.
HSBC chief economist Paul Bloxham told Reuters he now expects the central bank to hike rates twice this year, pushing the terminal rate to 4.85 per cent. Bloxham noted that domestic demand growth continues to outpace the overall supply capacity of the economy. Current market swaps imply a total tightening of 40 basis points from the Reserve Bank of Australia next year, which translates to roughly one and a half rate hikes.
RBNZ Dovish Pivot Weighs on Kiwi
In contrast, the New Zealand dollar faced severe downward pressure following a dovish rate hike executed by the Reserve Bank of New Zealand. According to Reuters, the policy move caused traders to scale back expectations, with markets now wagering on a policy hold at the central bank’s next meeting following two straight increases this year.
Pro Tip: Currency traders monitoring trans-Tasman spreads often watch central bank terminal rate pricing closely. Citi economist Faraz Syed noted that while market pricing for three additional rate hikes remains elevated, his team maintains a dovish view that the RBNZ cycle will likely cap out at 2.75 per cent due to anticipated activity slowdowns.
Broader FX Impact From Yen Surge
Beyond the trans-Tasman cross, broader foreign exchange markets experienced heightened volatility. The Japanese yen appreciated sharply against multiple major currencies, leaving global markets on alert for official intervention by Japanese authorities, as reported by Reuters.
Reflecting these broader moves, the Australian dollar and the New Zealand dollar both lost ground against the Japanese currency. The Aussie slipped 0.7 per cent to 113.05 yen, while the kiwi dropped 0.4 per cent to 92.49 yen, according to Reuters market figures.
Frequently Asked Questions
Why is the Australian dollar performing strongly against the New Zealand dollar?
The Australian dollar reached a 13-year peak against the kiwi due to diverging monetary policy expectations, with markets anticipating further rate hikes from the Reserve Bank of Australia while pricing in a potential policy hold by the Reserve Bank of New Zealand.
What do economists forecast for Reserve Bank of Australia interest rates?
According to HSBC chief economist Paul Bloxham, the Reserve Bank of Australia is expected to raise interest rates twice this year to reach a terminal rate of 4.85 per cent, driven by strong demand growth exceeding the economy’s supply capacity.
How did the Japanese yen affect the Aussie and the kiwi?
Both the Australian dollar and the New Zealand dollar lost ground against the yen—falling 0.7 per cent and 0.4 per cent respectively—amid a sharp appreciation of the Japanese currency driven by suspected government intervention.
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