Aussie Hits 2-Month High Against Yen, Kiwi Struggles

October 3, 2024

Key points:

• The Australian dollar surged 2% to 101.25 yen after Japanese PM shifted stance on interest rates.
• The New Zealand dollar fell to $0.6237 as markets priced in a 50-bps rate cut at the next RBNZ meeting.

The Australian dollar surged 2% overnight to reach 101.25 yen, breaking through the 100.00 resistance barrier. This surge came as Japan’s newly appointed Prime Minister, Shigeru Ishiba, signalled opposition to further interest rate hikes, a shift in stance from his earlier hawkish position.

The yen weakened broadly across markets, helping the Australian dollar to rally.

See: The AUDJPY chart shows a bullish trend on the VT Markets app.

Aussie faces resistance at 19-month high as traders remain cautious

Against the U.S. dollar, the Aussie showed a more tempered performance, hovering just below $0.6870, after finding support at $0.6850. Resistance remains firm at the recent 19-month high of $0.6942.

Traders seem cautious, with the currency’s movement suggesting that the dollar remains resilient, limiting the Aussie’s upward potential in the short term.

Kiwi under pressure as markets price in RBNZ cuts

In contrast, the New Zealand dollar continues to face challenges, slipping 0.3% overnight to $0.6237, a level not seen for six weeks against the Australian dollar.

Markets are now fully pricing in a 50-basis-point cut in the Reserve Bank of New Zealand’s (RBNZ) next meeting on October 9, with expectations rising for further cuts at the November and February meetings.

The RBNZ’s more aggressive easing stance, compared to the Reserve Bank of Australia’s (RBA) more measured approach, has kept the kiwi dollar under pressure.

While the RBNZ seems poised to move quickly, the RBA is projected to hold off on any cuts until at least December, with only a 16% chance of a November cut.

Sticky core inflation is likely to delay any decisions, with markets pricing in a reduction to 3.35% by the end of 2025 from the current 4.35%. This contrasts with the expected U.S. rate of 2.93% and the EU’s anticipated rate of 1.69%.

Previously, in case you missed: Australian Dollar Hits 19-Month Peak, Kiwi Reaches Yearly Highs

The divergence in monetary policies is also evident in the euro’s performance against the Australian dollar. The euro slid to a three-month low of A$1.6002, with dovish remarks from European Central Bank officials reinforcing expectations for two additional rate cuts by the end of the year.

The Australian dollar’s strength, in contrast to the euro’s weakness, suggests traders are positioning for prolonged policy differences between the regions.

Start trading now — click here to create your live VT Markets account.