Australian dollar hovers near 13-year high on kiwi as rate outlooks diverge

Sydney – The Australian dollar reached near a 13-year high against the New Zealand dollar on Thursday, as traders anticipated divergent interest rate paths between the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ), according to the provided material. Despite this gain, both currencies slipped against the Japanese yen, which gained strength due to suspected government intervention.

The Aussie currency fell 0.1% to NZ$1.2227, after surging 1% the previous day to a 13-year peak of NZ$1.2285 – the largest single-day increase since April 2025. This surge was primarily driven by a sharp depreciation in the kiwi, following a dovish interest rate decision from the RBNZ that signaled potential policy inactivity for the next month following two consecutive hikes this year.

The kiwi rebounded 0.2% to $0.5863, after declining 0.7% overnight to its weakest level since July 30. A key support level for the kiwi is observed around $0.5762.

Citi economist Faraz Syed reiterated the team's dovish stance on the RBNZ, asserting that a policy rate of 2.75% is deemed terminal in the current economic cycle. However, the market still prices in a 55% probability of three additional rate hikes by the RBNZ. Meanwhile, the Aussie benefited from solid economic data, fueling expectations that the RBA will raise interest rates for a fourth time during its meeting on September 28-29, with a 55% probability. The Aussie remained steady at $0.7170, following a 0.3% increase overnight.

The bulls are targeting the August high of $0.7208, with a break above this threshold potentially leading to $0.7280. HSBC Chief Economist Paul Bloxham now anticipates two interest rate hikes by the RBA this year, pushing rates to a terminal level of 4.85%, driven by sustained demand growth outpacing supply capacity growth. Swaps indicate a total tightening of 40 basis points by the RBA next year, equivalent to one and a half rate hikes.

In the wider foreign exchange market, the Japanese yen experienced a sharp appreciation, prompting market participants to remain vigilant about potential Japanese government intervention. Consequently, both the Aussie and kiwi currencies dropped 0.7% and 0.4%, respectively, to 113.05 yen and 92.49 yen.