SYDNEY, Nov 2 (Reuters) - The Australian and New Zealand dollars enjoyed a rare rally on Thursday as speculation that U.S. interest rates had finally peaked boosted equity markets and risk sentiment globally.
The Aussie climbed 0.5% to a three-week high of $0.6426 AUD=D3 , extending Wednesday's 0.9% bounce and taking it well away from last month's low of $0.6271. Resistance now lies at $0.6445.
The kiwi dollar followed to reach a two-week high at $0.5875 NZD=D3 , putting some distance between its recent low of $0.5774. Resistance lies around $0.5880 and $0.5939.
The gains came as the U.S. Federal Reserve held rates steady and sounded just dovish enough to reinforce wagers it was done tightening. Futures imply around a 70% chance of no more hikes, and a similar probability that cuts will start in June.
That contrasted with Australian markets which have recently shifted to price in a 65% chance the Reserve Bank of Australia (RBA) will hike rates at its meeting on Nov. 7.
0#RBAWATCH Indeed, futures imply a real risk the 4.1% cash rate could be raised twice to 4.60%, and kept there for all of 2024.
"As we go through 2024, we expect AUD rate differentials to turn from current headwinds to tailwinds, in conjunction with generalised USD slippage on an expected softer economy and Fed rate cuts," said Ray Attrill, head of FX strategy at NAB.
"This is pivotal to our view of AUD/USD strengthening up to $0.7000 in 2024, though that will likely also require the tailwinds of a stronger Chinese yuan."
The Aussie is widely used as a liquid proxy for the Chinese currency and has been tracking it lower in recent weeks.
All the talk of an RBA hike saw Australian 10-year yields AU10YT=RR surge early this week to their highest since August 2011 at 4.978%. They have since eased to 4.813% in the wake of the Fed news, but still underperformed against Treasuries to widen their spread premium to 9 basis points.
New Zealand yields NZ10YT=RR also fell sharply, helped by a surprisingly soft reading on jobs which reinforced wagers that local rates had peaked at 5.5%.
0#RBNZWATCH The divergence in the rate outlook between Australia and New Zealand has seen the Aussie surge 3.1% on the kiwi in just three weeks to touch NZ$1.0944 AUDNZD=R . That was its highest reading since June and opened the door for a test of resistance around NZ$1.1051.
