The Australian and New Zealand dollars demonstrated resilience on Feb. 5’s trading sessions, buoyed by widening yield differentials that have provided a critical "cushion" against global headwinds.
While both currencies remained relatively steady against a firming US dollar, the Australian dollar stole the spotlight by surging to a 35-year peak against the Japanese yen, touching 110.15.
The primary catalyst for this strength remains the hawkish stance of the Reserve Bank of Australia.
Following Feb. 3’s quarter-point hike to 3.85%, markets are now pricing in an 80% probability of a move to 4.10% by May.
The aggressive outlook has pushed three-year Australian bond yields to 4.303%, widening the premium over US Treasuries to 68 basis points, the largest spread since 2016.
Across the Tasman, the New Zealand dollar held firm at $0.6005 despite recent labor market data showing a decade-high jobless rate.
While this data led traders to push back expectations for a Reserve Bank of New Zealand rate hike to October, the "kiwi" continues to benefit from the broader regional yield support.