SYDNEY, Aug 26 (Reuters) - The Australian and New Zealand dollars were perched near their 2024 highs on Monday, buoyed by the near-certainty that U.S. central bank will lower interest rates next month, although inflation tests both at home and abroad loom large this week.
Local bonds rallied, tracking Friday's moves in Treasuries, after U.S. Federal Reserve Chair Jerome Powell said the time had come to start easing policy and emphasised that the central bank did not want to see further weakening in the labour market.
The Aussie AUD=D3 was at $0.6794, having jumped 1.9% last week to as far as $0.6798, which is proving to be a near-term resistance. It has gained for three straight weeks to around levels not seen since Jan. 1.
The kiwi dollar NZD=D3 stood at $0.6227, having climbed 3% last week to as high as $0.6236, marking the fourth straight week of gains. The next bull target would be $0.6369, the high from December.
The two have been buoyed by a broad retreat in the U.S. dollar =USD , which plunged 1.7% against its major peers last week, as markets bet the Fed will start lowering rates in September, with even a 36% chance of an outsized move of 50 basis points.
"We upgrade our month-ahead outlook (for AUD) to $0.6800, with upside risks over three months to $0.6900," said Imre Speizer, a strategist at Westpac.
"Tumbling volatility measures across global markets, diminished U.S. hard landing risks, and a firmer AU growth pulse developing in early Q3 are helping AUD/USD."
Figures on U.S personal consumption and core inflation are due on Friday, with analysts generally assuming the data will be benign enough to allow for rate cuts in September.
Australian three-year bond yields AU3YT=RR dropped 7 basis points on Monday to 3.494%, while ten year yields AU10YT=RR fell 4 bps to 3.879%, with the spread over the benchmark Treasury yields at a positive 9 bps.
Prospects of Fed easing have led traders to bet the Reserve Bank of Australia could cut in as early as November, with around a 50-50 chance of a move. A first easing is fully priced in by the end of the year.
0#RBAWATCH The central bank itself was not too sure, with much depending on data. The inflation report for July is due on Wednesday and is expected to show a marked slowdown in headline inflation to 3.4%, from 3.8%, thanks to government rebates for electricity bills.
Forecasts vary given the uncertain timing of the impact of these rebates. Westpac expects headline CPI to drop sharply to 2.9%, while ANZ and Commonwealth Bank of Australia expect it to ease to 3.3% and 3.4%, respectively.
As for the Reserve Bank of New Zealand, which already kicked off its easing cycle with a cut this month and flagged a lot more to come, swaps are fully priced for quarter-point cuts in October and November, with some chance one of them will be 50 basis points.
0#RBNZWATCH Against the kiwi, the Aussie AUDNZD=R struggled at NZ$1.09, way off its recent top of NZ$1.1158.
