SYDNEY (Reuters) - The Australian and New Zealand dollars edged higher on Monday as their U.S. counterpart was undermined by aggressive wagers on rate cuts from the Federal Reserve, which offset any bearishness from the probability of policy easing at home.
The Aussie was up at $0.6957 and trying to string together a fifth straight session of gains, having bounced from as low as $0.6832 last week. Chart resistance now lies around $0.6965 and $0.7025.
The kiwi held at $0.6596 and some way from its recent rough of $0.6488. It faces resistance at $0.6605 and a major top at $0.6681.
It also faces a hurdle on Wednesday when the Reserve Bank of New Zealand (RBNZ) holds a policy meeting at which it is expected to hold rates steady but echo the dovish sentiments of other central banks, if only to stop the kiwi from firming further.
"With central banks looking to add stimulus, pressure is building on the RBNZ to follow, or risk a backlash in financial markets," said Kiwibank chief economist Jarrod Kerr. "Central banks are worried that other central banks will beat them to the punch by cutting more aggressively."
Indeed, the market has already moved to price in more than 100 basis points of U.S. cuts by the Fed, outstripping expectations for both the RBNZ and the Reserve Bank of Australia (RBA).
"All of a sudden, the large interest rate (dis)advantage NZ has to the U.S., evaporates," said Kerr. "U.S. rates are likely to fall towards ours and the evaporation of the differential has been the driver of NZD currency strength."
Investors are pricing in another 50 basis points of RBNZ easing to 1% by year end, likely starting with a move in August.
Futures imply a greater than 80% chance the RBA will ease again at its meeting next week, and take rates down a total 50 basis points to 0.75% by Christmas.
As a result, yields on Australian 10-year paper hit an all-time low of 1.269% last week having fallen a huge 110 basis points since November.
In the same period, 10-year Treasury yields have shed almost 120 basis points to 2.05% and that is before the Fed has even touched short-term rates.
On Monday, the Australian three-year bond future had eased 2.5 ticks to 99.120, though that was from a record high. The 10-year contract dipped 3 ticks to 98.6850.
There is little in the form of major domestic economic data due this week, leaving the market hanging on any developments in the Sino-U.S. trade dispute at the G20 meeting.
(Editing by Simon Cameron-Moore)
