SYDNEY: The Australian dollar hovered near a six-month high on Monday (July 8), drawing support from favourable yield differentials, although it lost some ground on the kiwi ahead of a central bank policy meeting in New Zealand.

The Aussie was holding at US$0.6746, having jumped 1.2 per cent last week to as far as US$0.6753, the highest since early January. The uptick in the US jobless rate on Friday was a boon for the Australian dollar as it lifted the prospect of a September rate cut from the Federal Reserve.

The next major bull target is a peak from last December at US$0.6871, having broken out of the recent trading range of US$0.6576 to US$0.6705.

Also supporting the Aussie is the diverging rate outlook in the US and Australia. With the Fed seen increasingly likely to cut rates in September, the risk of another rate hike in Australia this year has sent local yields higher than their US counterparts.

Yields on 10-year paper slipped 4 basis points on Monday to 4.376 per cent, but the spread to Treasuries stayed at +7 basis points, a sea change from -30 basis points back in April.

Across the Tasman Sea, the kiwi dollar was edgy at US$0.6145, having shot up to as high as US$0.6171 earlier in the session. It faced resistance around US$0.6222, after gaining nearly 1 per cent last week.

The Reserve Bank of New Zealand will meet on Wednesday, and is widely expected to hold rates steady at 5.5 per cent. Traders expect a short statement but will be scrutinising the central bank's views on the economy after a slew of data came in on the soft side.

Chris Weston, head of Pepperstone Research, said the move in the New Zealand dollar would come from the tone of the statement, as markets have priced in about 60 basis points of easing by February 2025.

"AUDNZD has been a cross I've been on the long side, but I would be looking to cut back into the meeting," said Weston.

The recent rally in the Aussie against the kiwi has lost momentum, holding at NZ$1.0979. It snapped a seven-day winning streak, having peaked at a two-month top of NZ$1.1010 on Friday.

Against the low-yielding Japanese yen, the Australian and kiwi dollars held near their highest levels in more than three decades, fetching 108.26 yen and 98.55 yen, respectively, due to persistent carry trade demand.

 - Reuters