Australia, NZ dollars find support, market ponders rate outlook
By Wayne Cole
SYDNEY, Nov 28 (Reuters) -The Australian and New Zealand dollars found some support on Thursday as a drop in Treasury yields hindered their U.S. counterpart, while investors pondered the rapidly diverging path of domestic interest rates.
The Aussie held at $0.6498 AUD=D3, having edged up 0.4% overnight and away from a four-month low of $0.6434. Resistance now lies around $0.6550.
It fared less well on the yen, losing almost 1% to 98.14 AUDJPY= overnight as the Japanese currency jumped on the U.S. dollar.
The kiwi dollar stood at $0.5895 NZD=D3, after climbing 1% on Wednesday to as far as $0.5908. A break of $0.5922 resistance is now needed to keep the rally going.
The currency had enjoyed a short-squeeze bounce on Wednesday after the Reserve Bank of New Zealand cut rates by 50 basis points to 4.25%, rather than the super-sized 75 basis points some had wagered on.
That led markets to scale back the probability of another 50 basis points in February to 32%, even though RBNZ Governor Adrian Orr sounded open to such a move. 0#NZDIRPR
"The RBNZ has lowered its GDP growth forecasts materially, and lowered its projected rate path again," noted Nomura economist Andrew Ticehurst. "This boosts our confidence that the RBNZ will deliver another 50bp rate cut in February."
The New Zealand cash rate has now moved below the Australian rate for the first time in several years, and we expect the gap between the two to continue to grow," he added.
The Reserve Bank of Australia (RBA) has kept its cash rate at 4.35% for a year now and seems in no hurry to start cutting given still elevated core inflation. 0#RAUDIRPR
Markets imply the RBA will only ease to around 3.80% by the end of next year, compared with 3.30% for the RBNZ.
"The momentum in underlying inflation is still too strong to be consistent with the RBA's 2-3% inflation target," argued Paul Bloxham, head of Australian economics at HSBC.
"Our central case is that the RBA will not cut its cash rate until Q2, with a shallow easing phase to follow," he added. "We see an increasing risk - around 25% - that it may not cut at all in 2025."
Editing by Jacqueline Wong
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