Key Takeaways
- Australian 10-year bond yields hit 15-year highs, up 60 basis points year-to-date.
- New Zealand 10-year bond yields reached their highest since late 2023, up 24 basis points in two sessions.
- Reserve Bank of New Zealand hints at further rate hikes despite dovish stance.
The Australian and New Zealand dollars faced significant pressure on Tuesday as global bond markets grappled with the imminent US rate hike and ongoing financial instability. Australian 10-year bond yields surged to 5.394%, marking a 60 basis point increase for the year, while New Zealand’s 10-year bond yields climbed to 5.043%, their highest since late 2023.
The Reserve Bank of New Zealand (RBNZ) has been vocal about the potential for further rate hikes, despite recent dovish comments. Satish Ranchhod, a senior economist at Westpac, noted that household spending momentum is weak, with large increases in living costs and a soft labour market dampening discretionary spending.
Despite the dovish tone, markets predict a 60% chance of an RBNZ rate hike at the next meeting in October, with expectations of reaching 3.75% by mid-2027. The Reserve Bank of Australia (RBA) is also under pressure, with markets forecasting a 4.60% rate hike when it meets on September 29. The US Federal Reserve is expected to tighten monetary policy on Wednesday and again by December, adding to global financial stress.
The Australian dollar traded at $0.7135, having eased 0.4% overnight, with support at $0.7067 and resistance at $0.7150 and $0.7187. The New Zealand dollar remained at $0.5778, having dropped 0.6% overnight, with resistance at $0.5835 and support at $0.5762.
RBA Governor Michele Bullock is set to appear before Parliament on Friday, where she is expected to reiterate warnings that further rate hikes may be necessary to curb inflation.
