Australia, NZ dollars extend winning run as yields attract

By Wayne Cole

SYDNEY, Feb 13 (Reuters) - The Australian and New Zealand dollars were looking to notch a fifth straight week of gains on Friday as fat yield premiums underpinned demand, though a setback on Wall Street posed a challenge to risk sentiment.

A renewed selloff in tech stocks left the Aussie flat at $0.7089 AUD=D3, having slipped 0.5% overnight and away from a three-year high of $0.71465. The kiwi dollar held at $0.6036 NZD=D3, for a gain of 0.2% on the week.

Yet it was still 1.2% firmer for the week as yield spreads moved sharply in its favour and the Reserve Bank of Australia sounded hawkish on the outlook for further rate hikes.

"We view the RBA's pivot over the last three months from an implicit easing bias to a rate hike as a material hawkish change in its reaction function," said Andrew Boak, an economist at Goldman Sachs.

"Our macro forecast is more constructive than the RBA on growth and relatively more sanguine on the outlook for inflation," he added. "However, over the very near term, we assess the probability of a back-to-back rate hike in March to be 30% and higher than that currently priced."

Markets generally assume the RBA will wait for first-quarter inflation data before deciding whether to move on rates, and those are due in late April.

Thus May is priced at a 70% chance of a hike in the 3.85% cash rate, compared to 20% for the March meeting. 0#USDIRPR

The Reserve Bank of New Zealand meets next week and is considered certain to hold at 2.25%, having cut by 225 basis points over the past year or so. 0#NZDIRPR

Analysts are keen to see if the RBNZ sticks with mid-2027 as the window for a first hike, and to hear from its new Governor Anna Breman. Markets think a hike will come sooner as the economy recovers and are priced for an increase in the official cash rate (OCR) from September onwards.

The RBNZ's own survey of economists and business leaders out on Friday showed expectations for inflation picked up to 2.59% for the year ahead, the highest since mid-2024.

"We expect the RBNZ to reinforce the case for less stimulatory policy while remaining careful not to encourage further market pricing for tightening," BNZ analysts said in a note.