Australia, NZ dollars on a high as yields, commodities climb

By Wayne Cole

SYDNEY, Dec 24 (Reuters) - The Australian and New Zealand dollars stood near multi-month peaks on Wednesday as the prospect of steady or even higher interest rates at home drew carry demand, particularly against the yen.

Continued gains across commodities also supported the resource-heavy currencies with gold and copper hitting records, both of which are major export earners for Australia.

The Aussie was holding at $0.6700 AUD=D3, having climbed 1.2% in just two sessions to finally crack resistance at $0.6686. The break opened to way to the September peak at $0.6707, and a breach would take the Aussie to ground not seen since October 2024.

The kiwi dollar steadied at $0.5832 NZD=D3, after rising 0.8% overnight to crack the previous December top at $0.5831. The next barriers are at $0.5844 and the 2025 high of $0.6007.

The Aussie also extended its rally on the yen to reach a 17-month high at 104.60 AUDJPY=EBS, bringing its gains this quarter to almost 7%.

The rally has been underpinned by rising bond yields as markets swung to price in the risk of a 2026 tightening from the Reserve Bank of Australia.

Minutes from the RBA's last meeting showed the board preparing the ground for a hike should inflation not recede as hoped, highlighting the importance of the fourth-quarter CPI numbers on January 28.

"In our view, if Q4 core inflation exceeds the RBA's 0.8% q/q forecast, this likely puts it on course to hike at its February meeting," said Prashant Newnaha, a senior Asia-Pacific rates strategist at TD Securities.

"Our current call is for the RBA to be on hold in 2026, but we have consistently flagged the risk of higher yields and the risk of policy tightening."

The RBA holds its first meeting of the year on February 3 and markets imply a 28% chance of a quarter-point increase in the 3.6% cash rate. 0#AUDIRPR

Three-year bond futures YTTc1 slipped to 95.740 in the wake of the minutes, their lowest since late November 2023. That equates to yield of 4.26%, 68 basis points above the comparable U.S. yield.

Investors are also wagering the next move from the Reserve Bank of New Zealand will be up, with July priced around 45%. 0#NZDIRPR

The new head of the central bank has been unusually open about pushing back against that pricing, making the next policy meeting on February 18 an interesting one.