Australia dollar hits 11-month top on yen, kiwi faces rate test

By Wayne Cole SYDNEY, Oct 7 (Reuters) – The Australian and New Zealand dollars held broad gains on Tuesday as investors rushed to short the yen against higher yielding currencies, sending the Aussie surging to an 11-month top on its Japanese counterpart. Expectations for a more expansionary fiscal policy under the premiership of Sanae Takaichi saw markets scale back pricing for a rate hike from the Bank of Japan and sent the yen reeling. That sent the Aussie to 99.67 yen, after jumping 2.2% on Monday in the biggest daily gain since the U.S. tariff-induced market mayhem of April. The flows out of yen helped nudge the Aussie up to $0.6618 , having risen 0.3% overnight to test resistance around $0.6629. Support lies at $0.6577 and $0.6527. The kiwi dollar reached $0.5840, after edging up 0.2% overnight. It faces resistance at $0.5844, with support at $0.5805 and $0.5755. The kiwi faces a major test on Wednesday when the Reserve Bank of New Zealand meets and is widely expected to cut the 3.0% cash rate by at least 25 basis points, with markets pricing a 50-50 chance it might even ease by half a point. The case for aggressive stimulus was underlined by a gloomy business survey out on Tuesday that suggested the economy may have contracted in the third quarter, putting it back into recessionary territory. "This survey will support the RBNZ's view that the economy’s recovery remains sluggish and will likely further encourage those on the committee who believed in August that a larger 'circuit breaker' rate cut was appropriate," said Michael Gordon, a senior economist at Westpac. "We continue to expect a 50bp cut to 2.50% tomorrow." Markets responded by pushing two-year swap rates to their lowest since early 2022 at 2.5751%. In contrast, investors have scaled back pricing for a near-term easing from the Reserve Bank of Australia following a hawkish outlook last week. Futures now imply only around a 40% chance of a quarter point reduction in the 3.65% cash rate in November, when it was almost fully priced just a month ago. The Aussie was also aided at the margin by the bull run in gold to above $3,900 an ounce given Australia is a major producer and exporter of the metal. The government projects gold will become the country’s second-most valuable commodity export, overtaking liquefied natural gas with A$60 billion in earnings in 2025/26. (Reporting by Wayne Cole; Editing by Sam Holmes)

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