Australian dollar holds gains as yields lure; Kiwi jitters ahead of RBNZ meeting

SYDNEY, July 8 (Reuters) – The Australian dollar hovered near a six-month high on Monday, supported by favourable yield differentials, although it lost ground against the kiwi ahead of a central bank policy meeting in New Zealand.

The Australian dollar is holding steady at $0.6746, after jumping 1.2% last week to $0.6753, its highest level since early January. A rise in the US unemployment rate on Friday was a boon for the Australian dollar as it raised the prospect of a Federal Reserve rate cut in September.

The next major upside target is last December’s high at $0.6871, after breaking out of the recent trading range of $0.6576 to $0.6705.

Diverging interest rate outlooks in the US and Australia are also supporting the Australian dollar. With the Fed increasingly likely to cut rates in September, the risk of another rate hike in Australia this year has pushed local yields higher relative to their US counterparts.

Yields on 10-year bonds fell 4 basis points on Monday to 4.376%, but the spread with Treasuries remained at +7 basis points, a sharp change from -30 basis points in April.

Across the Tasman Sea, the New Zealand dollar was nervous at $0.6145, after climbing as high as $0.6171 in early trading. It found resistance around $0.6222, after gaining nearly 1% last week.

The Reserve Bank of New Zealand will meet on Wednesday and is expected to hold rates at 5.5%. Traders expect a brief statement but will be closely watching the central bank’s outlook on the economy after a series of weak data.

Chris Weston, director of Pepperstone Research, said the direction of the New Zealand dollar would come from the tone of the statement, as markets have priced in around 60 basis points of easing by February 2025.

“AUDNZD has been a cross I have been long on but I would look to get back into the meeting,” Weston said.

The Aussie’s recent rally against the Kiwi has lost momentum, holding at NZD1.0979. It ended a seven-day rally after hitting a two-month high of NZD1.1010 on Friday.

Against the low-yielding Japanese yen, the Australian and New Zealand dollars held near their highest levels in more than three decades, reaching 108.26 yen and 98.55 yen respectively, on persistent carry trade demand.

(Reporting by Stella Qiu, editing by Sherry Jacob-Phillips)