The Australian and New Zealand dollars were nursing losses against a broadly firmer U.S. currency on Friday as widening yield differentials and strains in emerging markets took their toll.
The Australian dollar AUD=D3 was stuck at $0.7212, having fallen 0.7 percent overnight to as low as $0.7202. Chart support now comes in at $0.7142 and the recent 2-1/2 year trough at $0.7085, while $0.7315 marks tough resistance.
Yet the currency actually rose on the euro EURAUD= and the yen AUDJPY= , underlining the move was more about U.S. dollar strength than Aussie weakness.
The latest hike from the Fed has left U.S. two-year yields US2YT=RR at 79 basis points over those in Australia AU2YT=RR , easily the largest premium in modern history.
Markets are pricing in at least three more Fed hikes but no move from the Reserve Bank of Australia (RBA) until early 2020, given subdued inflation and wages at home.
The RBA holds its October meeting next week and is considered certain to keep rates at 1.5 percent.
"In a world where most policy interest rates are either close to or at post-crisis lows and those raising rates substantially are only in emerging markets anxious to shore up their currencies against the U.S. dollar, the medium-term dollar outlook remains broadly positive," said Sean Callow, a senior currency strategist at Westpac.
The comparison is also stark across the Tasman Sea, where the Reserve Bank of New Zealand has just reiterated its intention to keep rates at a record low of 1.75 percent until 2020.
"While the economy is in good shape, the Bank remains determined to sit on its hands for quite some time," said Annette Beacher, chief Asia-Pacific macro strategist at TD Securities, who sees no hike until November next year.
"Going forward, we expect (RBNZ) Governor Orr to keep pressure on the NZD."
As a result short-term U.S. yields are no less than 109 basis points above those in New Zealand NZ2YT=RR . All of which left the kiwi NZD=D3 down at $0.6610, having backtracked from a high of $0.6676 on Thursday.
The currency was 1 percent lower for the week and not far from its recent trough at $0.6501.
On the day, New Zealand government bonds
0#NZTSY= rallied and yields fell as much as 5 basis points at the longer end.Australian government bond futures edged higher, with the three-year bond contract YTTc1 up 2 ticks at 97.895. The 10-year contract YTCc1 also firmed 2 ticks to 97.3050.
