The Australian and New Zealand dollars were celebrating fresh five-month highs on Thursday as markets went all-in betting on rapid-fire global rate cuts next year, driving bond yields to their lowest since June.
A fourth straight session of gains saw the Aussie at $0.6857 AUD=D3 , and nearer to a major double-top from June and July at $0.6895/6900.
The kiwi dollar climbed to $0.6353 NZD=D3 , within striking distance of its July peak at $0.6412.
Market pricing for rate cuts was becoming ever more aggressive with a March move by the Federal Reserve now put at a 91% probability, while a cut from the European Central Bank was seen as a 72% chance. FEDWATCH
0#ECBWATCH Futures imply 158 basis points of Fed easing next year, and no less than 165 basis points from the ECB.
The Reserve Bank of Australia (RBA) is seen cutting as soon as May or June, even though the central bank still has a nominal tightening bias. Yet futures imply a relatively modest easing of 61 basis points for all of 2024.
0#RBAWATCH The Reserve Bank of New Zealand (RBNZ) is tipped to start cutting in May and to lower rates by about 112 basis points for the year.
0#RBNZWATCH Such dovish pricing stoked steep gains in bonds with Australian three-year futures YTTc1 reaching their highest since early June at 96.490. The implied yield of 3.51% compares to the overnight cash rate of 4.35%.
The next major domestic test for the market will be the monthly consumer price data for November due on Jan. 15. Analysts see a chance of a sharp slowdown to about 4.1% on a year earlier, from 4.9% in October, thanks in part to base effects.
Such a drop would suggest inflation for the whole fourth quarter will come in below the RBA's forecast of 4.5% and lessen the risk of it resuming tightening at its first meeting of the year on Feb. 6.
