The Australian and New Zealand dollars rested near five-month peaks on Friday and bonds extended their blistering rally as a surprisingly soft reading on U.S. inflation stoked wagers for rapid-fire rate cuts globally next year.
The Aussie crested at $0.6803 AUD=D3 , having climbed 1% the previous session to clear the $0.6800 barrier for the first time since late July. The break opened the way to the next bull target at the double top of $0.6895/6900.
The kiwi dollar reached $0.6298 NZD=D3 after rising 0.7% on Thursday, taking it closer to the July top of $0.6412.
Risk appetite was whetted by an unexpected downward revision to the U.S. third-quarter core personal consumption expenditures (PCE) price index to an annualised 2.0%, matching the Federal Reserve's target.
That stirred speculation the November reading of core PCE inflation due later Friday would also surprise on the downside, leading futures to imply an 82% chance the Fed would cut rates as soon as March. FEDWATCH
Markets, in turn, ramped up expectations for local easing with futures now fully priced for a June rate cut by the Reserve Bank of Australia (RBA), even though the central bank still has a tightening bias.
0#RBAWATCH The Reserve Bank of New Zealand (RBNZ) is now seen certain to ease in May, when it recently warned that no cuts were possible until 2025.
0#RBNZWATCH Australia's November consumer price measure is not due until the end of January but again analysts see risks to the downside.
"We expect annual growth in the monthly CPI indicator to slow to 4.1% y/y in November from 4.9% y/y in October," said Catherine Birch, a senior economist at ANZ. "This would be the weakest annual inflation on the monthly measure since January 2022."
"We expect inflation, on a quarter-on-quarter basis, to be annualising within the RBA's 2-3% target band in the second half of 2024."
Bond markets are acting like all this is a done deal and have taken three-year yields AU3YT=RR down to its lowest since early June at 3.667%. That breached a major chart barrier at 3.69% and was a world away from a 4.48% top hit in November.
Yields on 10-year bonds AU10YT=RR fell to a four-month trough of 4.04%, down from its November peak of 4.999%.
In New Zealand, the key two-year swap rate NZDSM3NB2Y= hit its lowest since February at 4.680%, opening a huge gap to the overnight cash rate of 5.5%.
