The Australian Dollar Rising as The Yen Falls

On Friday, the Australian and New Zealand currencies had back-to-back weekly gains; the pair was supported by forecasts of rising interest rates and surging commodities prices, which have pushed the Australian dollar to a six-year high.

The Australian dollar (AUD=D3) remained steady at $0.7511 after hitting a four-and-a-half-month high of $0.7527 overnight. The high of $0.7555 in October serves as resistance. This week, the Australian dollar is up 1.3 percent against the US dollar, while the yen (AUDJPY=) is up 3.5 percent, marking the longest weekly advance in 19 years. In early trade, it touched a six-year high of 92.01.

Japan’s Impact on The Australian Dollar

It’s tough to dispute that a correction is due following its spectacular surge, said an analyst in Sydney. The AUD/JPY is a currency combination that precisely symbolizes Australia’s role as an energy exporter.

The New Zealand dollar (NZD=D4) should increase 0.9 percent this week. Still, it has encountered resistance at $0.6995 on fears that rising rates and imported inflation from oil costs might harm the economy. At the time of writing, it was trading at $0.6968.

Bonds on both sides of the Tasman and Treasuries took a beating after Federal Reserve Chair Jerome Powell delivered a hawkish speech. The 10-year government bond yield (NZ10YT=RR) was steady at 3.340 percent, up 15 basis points from the previous week. On Friday, Australian government bond futures hit new lows as Westpac pushed back some rate rise predictions.

The three-year bond contract (YTTc1) dropped 7.5 points to 97.490, its lowest level since late 2014; moreover, the 10-year bond contract (YTCc1) dropped 5.5 points to 97.115.

In a note, Westpac economists Bill Evans and Elliot Clarke wrote that the (Fed’s) more resolute steps should modestly accelerate the RBA’s tightening profile.

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