The Australian dollar steadied on Friday as solid technical support helped lift it from seven-week lows, while the New Zealand dollar benefited from a steep rise in domestic bond yields.
The Aussie nudged back up to $0.6822 AUD=D3 , after touching a trough of $0.6783 overnight. It was still down 0.8% for the week but had found bids between the 200-day moving average of $0.6801 and a major chart level at $0.6780.
The kiwi dollar held at $0.6236 NZD=D3 , to be almost unchanged on the week so far. Its 200-day moving average lies at $0.6184, with more support at $0.6150.
The kiwi had benefited from having one of the few central banks in the developed world as hawkish as the U.S. Federal Reserve, with the Reserve Bank of New Zealand (RBNZ) hiking by half a point this week and promising more to come.
Its current policy rate of 4.75% stays just ahead of the Fed, and the RBNZ aims to get as far as 5.5%, the very extreme of market pricing for U.S. interest rates.
0#RBNZWATCH FEDWATCHAustralian interest rates lag at 3.35%, and the most the market is pricing is a top of 4.35%, in part reflecting recent downward surprises on wages and employment.
Yields on New Zealand 10-year bonds NZ10YT=RR have spiked almost 31 basis points this week to 4.69%, while Australian 10-year yields AU10YT=RR edged up just 5 basis points to 3.87%.
The divergence has seen the Aussie slip 0.8% on the kiwi this week to NZ$1.0924 AUDNZD= , and off a four-month top.
"The RBNZ's assessment was much more hawkish than we expected," said Jarrod Kerr, chief economist at Kiwibank, referring to an interest rate outlook published after an RBNZ policy meeting on Wednesday. Kerr had thought the recent damage wrought by cyclone Gabrielle would give the central bank some pause.
"Global disinflation and the rapidly rising risks of a regrettable recession were not enough to soften the RBNZ tone," he added. "We continue to highlight the risk of overtightening."
The Aussie did get a leg up on the yen after the presumptive head of Japan's central bank stuck to the status quo on monetary policy and seemed to be in no hurry to start unwinding its massive stimulus program.
That saw the Aussie edge up to 91.86 yen AUDJPY= , from a 91.36 low, though it remains some way from the recent two-month high of 93.03.
