Key Takeaways
- Australian dollar reaches four-month high amid interest rate hike expectations.
- Bond yields rise to their highest in almost six months, threatening a bear target.
- Markets price in an 80% chance of a rate rise later this month.
SYDNEY: The Australian dollar has strengthened, reaching a four-month high, as investors bet on a near-term interest rate hike, pushing short-term bond yields to their highest in almost six months.
Analysts at JPMorgan noted that Reserve Bank of Australia (RBA) commentary suggests a shift towards risk management, with a 25 basis point hike expected for the September meeting, to 4.60%.
The RBA's hawkish stance, combined with the inflationary pulse from Brent oil above $101 a barrel, has lifted 3-year bond yields by 8 basis points to 4.905%, threatening to exceed a March spike top at 4.905%.
A break of this level would take yields to levels not seen since mid-2011, potentially pushing them towards a bear target around 5.30%.
The next target for the Australian dollar is the May top of $0.7277, followed by peaks from 2022 at $0.72825 and $0.7661.
The New Zealand dollar also saw a 13-year high against the Australian dollar, reaching NZ$1.2375, while the euro touched a 21-month low at A$1.6073 overnight.
Support for the New Zealand dollar lies at $0.5802, with resistance around $0.5902, as the Reserve Bank of New Zealand projected fewer rate hikes ahead than investors had anticipated.
Markets have since pared back the chance of a rise in the 2.75% cash rate in October to 28%, though a move in December is still priced as near certain.
