SYDNEY: The Australian and New Zealand dollars made fresh three-month highs on Tuesday, buoyed by higher commodity prices, hopes of global policy easing next year, and a turnaround in the yuan, as they are both traded as liquid proxies for the Chinese currency.
The Aussie rose 0.4% to $0.6586, after gaining 0.6% overnight.
It has risen nearly 5% from a one-year low of $0.6271 hit in late October, and now stands within a whisker of its 200-day moving average of $0.6590.
A break above that level could spark accelerated gains.
The kiwi dollar climbed 0.5% to $0.6070, a new three-month top, having also jumped 0.8% overnight.
It is also eyeing a major level of $0.6095 and is up 5.1% from its low in October.
The upward moves have largely been fuelled by expectations that the US Federal Reserve is done hiking interest rates and will be easing policy next year.
That contrasted with the hawkish Reserve Bank of Australia which may still have one more hike left in the bag.
The turnaround in the Chinese yuan, which has recovered to its strongest since July, and higher iron ore prices due to Beijing’s efforts to boost its property sector also aided the Aussie, which is often traded as a liquid proxy for the Chinese currency.
Minutes of the November policy meeting showed that the RBA was concerned that inflation expectations could become unmoored if it did not raise interest rates this month. Governor Michele Bullock also warned of the inflation challenge in the next few years.
The 10-year Australian government bond yields were trading 5 basis points above their US counterparts at 4.458%, having turned positive this month.
Philip Wee, a senior FX strategist at DBS Bank, expects the Australian dollar to weaken if the 10-year yield differential turns negative, adding that the Fed minutes on Wednesday could frustrate those that have hoped for an end to rate hikes.
“Nonetheless, we see 0.66-0.67 as a potential profit-taking zone (for AUD) into the long Thanksgiving weekend,” said Wee.