The Australian dollar struggled against the greenback on Friday as markets increased sharply the chance of an interest rate cut next week in Australia following a weakening in mining investment intentions.
But the dollar rose 0.4 per cent on the day against the yen, hovering very near eight-month peaks as investors squared up positions for the end of the month.
The dollar was on track to show gains of close to 4 per cent this month against the yen on expectations of aggressive monetary easing in Japan.
The dollar hopped up above 86.00 yen, within striking distance of a peak of 86.42 hit on Monday. Likewise, the kiwi bobbed up to 67.84 yen, having touched 68.08 earlier this week.
Against the US dollar, the Aussie nudged lower to $US1.0427, versus Thursday's late local level of $US1.0462, weighed by rising chances of a quarter point rate cut.
The Reserve Bank of Australia (RBA) holds its monthly policy meeting on Tuesday and interbank futures are now factoring in a 74 per cent chance of an easing to a historic low of 3.0 per cent, from around 50-50 earlier in the week. Swap markets are pricing in an 85 per cent chance.
Sixteen out of 23 economists surveyed by Reuters expect a rate cut, while nearly all forecast the cash rate to be at 3.0 per cent or lower by March. After next week, the RBA doesn't meet until February.
"With a two-month hiatus before the next RBA meeting, inflation on target, weakening investment intentions, and only modest signs that monetary policy is driving rebalancing of growth as yet, we expect another 25bp cash rate cut next week," said Paul Bloxham, chief economist at HSBC Australia.
The Aussie dollar was still on track to post a small increase of 0.5 per cent against the greenback this month, having climbed a two-month peak of $US1.0490 on Tuesday.
Immediate support was seen around $US1.0410, the 20-day MA, with resistance at $US1.0490.
Next week sees a tide of Australian data, including current account, growth and jobs, on top of a central bank rate review.
Australian bond futures extended gains, bouncing from multi-week lows hit earlier this week. The three-year contract was 0.06 points higher at 97.390, while the 10-year contract added 0.045 points to 96.910.
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