The Australian dollar was heading for hefty weekly gains on Friday as a diverging outlook for interest rates lifted it to a near 17-year high against the yen and a one-year top on the euro.
A rate cut from the Swiss National Bank and a dovish policy outlook from the Bank of England stood in stark contrast with the Australian situation where markets are pricing some chance the next move might be a hike.
0#RBAWATCH The Reserve Bank of Australia (RBA) this week held rates at 4.35% and warned it was alert to upside risks for inflation.
"We think a hike remains unlikely given the ongoing easing in the labour market and the slow pace of activity growth," said Adam Boyton, head of Australian economics at ANZ.
"Still, we can't rule out a post Q2 CPI rate hike entirely," he added. "If trimmed mean inflation was to print above 1% and activity data show signs of picking up, then the Board could tighten."
The consumer price report for the second quarter is due at the end of July, just days before the RBA's August board meeting. Analysts look for core inflation to rise by 0.8% or 0.9%, but with a risk it could be 1% or more.
Monthly CPI figures for May are due next week and are expected to show a fall of around 0.2% on the month, but a rise in the annual rate to 3.7% from 3.6%.
Even if the RBA gets by without a hike, markets see little chance of an easing until April next year. By that time, futures imply U.S. rates will have fallen by 100 basis points.
That outlook kept the Aussie firm at $0.6659 AUD=D3 , having risen 0.7% for the week, though it faces stiff resistance in the $0.6705/14 area.
Against the yen, the Aussie was up 1.7% for the week at 105.85 yen AUDJPY= , heights not seen since mid-2007. The next major target is the 2007 peak of 107.84.
It also made gains on the euro, which was off 0.6% for the week at a one-year trough of A$1.6048 EURAUD=R .
The New Zealand dollar lagged at $0.6119 NZD=D3 , having dipped 0.3% for the week as markets anticipate rate cuts there as soon as October or November.
0#RBNZWATCH Data out on Thursday showed the economy barely grew in the first quarter and has been all but flat for six quarters.
"By our forecasts, inflation is set to fall back within the RBNZ 1-3% target band by the third quarter," said Jarrod Kerr, chief economist at Kiwibank. "We'll see that data in mid-October, and from there rate cuts could come as early as November."
