Australia, NZ dollars extend gains as US Democratic sweep fuels risk rally

The Australian and New Zealand dollars continued to rise on Thursday, following a Democratic Party victory in the US midterm elections. This rally in equities and a decrease in the greenback contrasted with domestic challenges. The Australian dollar increased by 0.2% to $0.7019, after a 0.6% surge the previous day to a high of $0.7022.

This recovery marked a break from a two-day decline after the Reserve Bank of Australia raised interest rates for the fifth time this year, though it ceased its tightening trend. The New Zealand dollar also gained 0.4% to $0.5642, having risen 0.6% overnight to a high of $0.5645, avoiding a low not seen since April 2025. Stock prices initially plummeted after Democrats took control of Congress in the US elections, but a nearly 9% drop in oil prices later prompted a positive shift, as concerns about an imminent attack on Iran diminished.

The global stock market surged, while the dollar and bond yields fell. In Australia, attention now turns to Andrew Hauser, deputy governor of the RBA, who is scheduled to address the nation later in Canberra. He is anticipated to discuss the perceived trust in the monetary policy transmission and might be questioned about the impact of the recent oil price decline on policy decisions.

Additionally, David Jones, a 188-year-old department store chain, entered administration on Thursday, while National Australia Bank reported a significant drop in its annual profits. "There are signs that activity in Australia is now slowing," stated Diana Mousina, deputy chief economist at AMP. "Slower economic growth means a softer labour market, and we expect the unemployment rate to rise towards 5% in mid-2027 (from the current 4.7%).

However, this is at the lower end of Australia's typical experience." Swaps indicate a mere 6% probability that the RBA will raise interest rates again next month, with 6 basis points of additional tightening forecasted by early next year. Rate cuts are on the horizon, with a quarter-point move already priced by the end of the year.

On the other hand, there is a 60% chance that the Reserve Bank of New Zealand will raise interest rates by a quarter point in December following a narrow vote that held policy steady last month. New Zealand is also set to vote on Saturday, with Prime Minister Christopher Luxon's National coalition government facing voter dissatisfaction over the high cost of living, rising unemployment, and an underperforming economy.

Data released on Wednesday revealed the jobless rate climbed to an 11-year high of 5.7% in the third quarter.