Dollar weakens, kiwi rises as interest rate paths differ

Dollar Defends Ahead of Thanksgiving, Fed on the Horizon for December

SINGAPORE, Nov 27 – The dollar is edging toward its largest weekly dip in four months as traders pull back before the U.S. Thanksgiving holiday. Investors are considering the unfolding situation for next year, especially as the U.S. may be increasingly isolated in its approach to interest rate cuts.

During the Asian trading session, the yen appreciated by 0.4% to 155.87 against the dollar, supported by a shift towards a more hawkish tone from officials at the Bank of Japan. Meanwhile, the euro climbed above $1.16.

The New Zealand dollar rose to $0.5728, reaching a three-week high, up nearly 2% following a shift in stance from its central bank just a day prior.

The Reserve Bank of New Zealand had lowered interest rates recently, though officials indicated that they might reconsider further cuts and suggested that the easing period may be concluding. With some robust economic data released, markets now anticipate interest rate hikes, potentially extending through December 2026.

This outlook stands in stark contrast to the more than 90 basis points of rate cuts that the U.S. Federal Reserve has factored in for the upcoming year.

Retail sales in New Zealand showed an increase in the third quarter, and business confidence reached its highest point in a year, according to recent data.

“The kiwi green shoots are starting to sprout pretty quickly now,” mentioned Imre Speiser, a strategist at Westpac.

Australia’s Optimism

Similarly, the Australian dollar gained momentum after the release of inflation data that exceeded expectations, reinforcing views that Australia’s cycle of rate cuts has come to an end.

Australia’s three-year interest rate now stands at 3.86%, with the 10-year rate at 4.5%, the highest among G10 countries, rendering the Australian dollar more favorable in terms of value, according to analysts.

The Australian dollar trades at $0.6536, hovering in the middle of its 18-month trading range. Kit Jacques from Société Générale said he has been focusing more on the Chinese yuan than on interest rates lately, noting its recent sharp appreciation, which could bolster further gains.

The yuan steadied at 7.08 against the dollar on Thursday, following a rebound attributed to adjustments made by China’s central bank.

The British pound also made gains, rising to $1.3265, its highest since late October, marking its most substantial weekly increase since August. This uptick comes as the UK budget helped to alleviate concerns regarding public finances.

Dollar’s Retreat

The U.S. dollar index remained stable at 99.433, retracting from a six-month peak reached the previous week and on track for its most significant weekly drop since July.

“The market will soon turn its attention to major trades for 2026, but I seriously doubt that ‘long USD’ will make the cut,” remarked Brent Donnelly, president of Spectra Markets.

He mentioned that the anticipated appointment of Kevin Hassett, an economic advisor who advocates for rate cuts, as the next chairman of the Federal Reserve, could likely spell trouble for the dollar.