Citi Lowers AUD and NZD Forecasts on US Dollar Dominance

Citi cut its short-term forecasts for the Australian and New Zealand dollars on Friday, citing a resurgent US dollar and rising Treasury yields. AUD/USD traded near 0.6899, down roughly 4% in June. NZD/USD slipped to 0.5641, losing nearly 6% over the same period.

The bank attributed the pressure to the Federal Reserve's signal that rates will stay high for an extended stretch. The yield on the 10-year US Treasury has climbed, widening the interest-rate gap between the US and both Australia and New Zealand. That shift has sapped demand for higher-yielding currencies, especially those linked to commodity exports, Citi said.

The greenback is testing resistance near 105 on the trade-weighted index. A break above that level would likely accelerate losses in the Antipodean pairs, traders said. Citi's note focused on external drivers rather than domestic commodity prices. The Australian dollar has also faced falling iron ore prices. The New Zealand dollar has dealt with a drop in dairy prices and a cautious stance from the Reserve Bank of New Zealand. Citi said the RBNZ's dovish tilt, combined with the Fed's higher-for-longer rhetoric, has made the kiwi especially vulnerable.