Australian dollar suffers setback, yields spike to 15-year peak

Business Recorder reported that the Australian and New Zealand dollars weakened on Friday after a jump in oil prices hurt risk assets and convinced investors that further global rate increases were likely. Traders now price a 90% probability that the Reserve Bank of Australia raises rates later this month, which pushed bond yields to 15-year highs. The Australian dollar held at $0.7161, having slipped 0.8% overnight from a four-month peak of $0.7238.

Josh Williamson, Citi's head of Australian economics, said the central bank needs further hikes to get ahead of inflation. Citi now expects two more hikes this year, raising its terminal rate forecast to 4.85% and delaying its first rate cut until Q4 2027. Market swaps put 33 basis points of hikes by November and 40 by December, and the 4.35% cash rate faces its next meeting on September 29.

Australian three-year yields rose 18 basis points to 5.050%, while 10-year yields reached 5.256%, their highest since mid-2011. In New Zealand, 10-year yields added 13 basis points to 5.055%, the highest since late 2023. The kiwi held near $0.5811, having dropped 0.7% overnight to a six-week low of $0.5795. Bets on a US Federal Reserve rate rise at next week's meeting also grew, giving the US dollar broad support.