SYDNEY, Aug 6 (Reuters) - The New Zealand dollar was looking
to end the week with hefty gains on Friday as investors wager a
hike in local interest rates is now just days away, while
Australian policy makers are still flagging no move until 2024.
The kiwi dollar stood at $0.7048, having gained
1% for the week so far. The next targets are a one-month top of
$0.7088 hit earlier in the week and the July peak of $0.7105.
The Aussie lagged at $0.7387, to be up 0.5% for the
week. That was off its high of $0.7426, and a break there is
needed to clear the way for a return to $0.7500 and maybe an end
to its recent bout of weakness.
The kiwi has been on a roll since super-strong jobs data all
but cemented expectations for a rate hike by the Reserve Bank of
New Zealand on Aug. 18, which would be its first since mid-2014.
The cash rate is currently at a record low of 0.25%,
following an emergency cut of 75 basis points early last year.
It would also be the first increase by any developed country
since the pandemic hit and reflects the strength of the local
economy and labour market, where unemployment has dived to 4%
two years earlier than the central bank had forecasted.
The country's success in eliminating the coronavirus also
sets it apart, though low levels of vaccination do leave it
vulnerable to an outbreak.
"The RBNZ's assessment of conditions could change if Delta
risks manifest as a drop in export demand, or if there is a
related softening in local confidence and activity," said
Westpac senior economist Satish Ranchhod.
"However, given the strength of economic activity and
related lift in inflation pressures, we continue to expect that
the RBNZ will hike the cash rate by 25bps at its August meeting,
with follow up hikes in October and November."
Markets have already priced in much of that, with two-year
swap rates up 16 basis points on the week at 1.1975%.
In contrast, the Reserve Bank of Australia (RBA) keeps
insisting its rates will not rise until 2024 given a much softer
long-term outlook for inflation and wages.
Coronavirus lockdowns across the country have also clouded
the near-term picture, though the RBA is counting on the economy
rebounding quickly once restrictions ease.
As a result, Australian 10-year bond yields are
near their lowest since February at 1.18%, five basis points
below comparable U.S. yields.
(Editing by Shri Navaratnam)