SYDNEY: The Australian dollar held near a 13-year high against the kiwi on Thursday as markets bet on diverging rate outlooks between the two central banks, though both currencies lost ground to a surging yen amid suspected Japanese government intervention.

The Aussie slipped 0.1% to NZ$1.2227, having jumped 1% overnight to hit a 13-year peak of NZ$1.2285.

That was the biggest daily rise since April 2025 and was largely due to sharp falls in the kiwi after a dovish rate hike from the Reserve Bank of New Zealand (RBNZ) that had markets wagering on a policy hold next month after two straight increases this year.

The kiwi bounced 0.2% to $0.5863, having fallen 0.7% overnight to as low as $0.5802, the weakest since July 30. Support is around $0.5762.

"Our long standing dovish view on the RBNZ remains unchanged. We believe 2.75% is terminal in this cycle," said Faraz Syed, an economist at Citi, adding that market pricing of three more rate hikes still remains high.

"We should see a slowdown in activity indicators over the coming weeks and months that will likely prevent the RBNZ from hiking further."

The Aussie also drew some support from better-than-expected economic data that added to bets the Reserve Bank of Australia (RBA) will raise interest rates a fourth time at its September 28-29 meeting, priced at 55% probability.

It was steady at $0.7170, after gaining 0.3% overnight. Bulls are targeting the August high of $0.7208, with a break above that level opening the way to $0.7280.

Paul Bloxham, chief economist at HSBC, now expects the RBA to hike twice this year to a terminal rate of 4.85%, arguing demand growth is still exceeding growth in the economy's supply capacity.

Swaps imply a total tightening of 40 basis points from the RBA next year, equivalent to one and a half rate hikes.

In the broader FX market, the yen appreciated sharply, leaving markets alert to the possibility of intervention by Japanese authorities. The Aussie and kiwi lost 0.7% and 0.4% to 113.05 yen and 92.49 yen , respectively. - Reuters