The Australian and New Zealand dollars were closing out 2025 with steady gains against the US dollar on Dec. 31, buoyed by investor bets that domestic interest rates could rise in the near term.
The Australian dollar held at $0.6695, just below a 14-month high of $0.6727, leaving it up more than 8% for the year and well above the $0.5910 low hit amid April’s tariff-driven market turbulence.
The New Zealand dollar hovered at $0.5787, posting a more modest annual gain of 3.5%, supported at $0.5736 and facing resistance near a three-month high of $0.5853.
The Aussie's rally has been driven by hotter-than-expected inflation readings, raising speculation the Reserve Bank of Australia could hike its 3.6% cash rate as soon as the February 3 policy meeting.
Of the four major local banks, CBA and NAB anticipate a February increase, while ANZ and Westpac expect rates to stay on hold through 2026, albeit with a bias toward tightening.
Market pricing currently implies a roughly 30% chance of a February hike, rising to 50% in March and 80% by May.
In contrast, the Reserve Bank of New Zealand is unlikely to raise its 2.25% cash rate until mid-2026, after a series of steep cuts totaling 225 basis points over the past year.
Recent domestic data briefly sparked rate-hike speculation, but the new central bank governor has signaled a cautious approach, with markets now assigning only a 40% chance of a July increase.