Australia, NZ dollars on defensive as spreads shrink

Business Recorder reported that both the Aussie and the kiwi came under pressure on Thursday, as turmoil in European debt markets lifted the US dollar the most. Worries about French budget deficits pushed the gap between French and German 10-year bond yields to its widest level since 2012. The strain also reached Italian and Greek bonds overnight, pulling the euro to a 22-month low against the Aussie at A$1.6039 and boosting the greenback further.

The Aussie fell 0.3 per cent overnight to $0.6965, with resistance placed in the $0.6990 to $0.7004 band and support at a 13-week low of $0.6904. The New Zealand dollar hovered near $0.5605 after a 0.4 per cent decline, and a break beneath its 10-month low of $0.5581 could extend losses toward $0.5485.

Australian 10-year yields have climbed to a 15-year high of 5.432 per cent, though Treasury yields have risen by far more. As a result, the premium on Aussie debt has narrowed to 8 basis points from about 40 basis points in mid-September. Business Recorder cited CBA analyst Carol Kong, who expects the Reserve Bank of Australia to cut its cash rate in 2027, which would eventually narrow the rate differential that supports the currency.