Australia, NZ dollars extend gains as US Democratic sweep fuels risk rally

SYDNEY, Nov 5 (Reuters) - The Australian and New Zealand dollars extended gains on Thursday as a Democratic Party sweep in the US midterm elections fuelled a rally in equities and a broad retreat in the greenback, offsetting domestic headwinds.

The Aussie dollar edged up 0.2% to $0.7019 after rallying 0.6% overnight to as high as $0.7022. The rebound broke a two-day losing streak after the Reserve Bank of Australia hiked interest rates for a fifth time this year but dropped its tightening bias.

The kiwi dollar rose 0.4% to $0.5642, having risen 0.6% overnight to as high as $0.5645. That salvaged it from hitting an October low of $0.5566, a level not seen since April 2025.

Stocks initially fell after Democrats seized control of both chambers of Congress in the US midterm elections, but a nearly 9% fall in oil prices later set the tone as fears of an imminent attack on Iran faded. Global stocks jumped while the dollar and bond yields fell. MKTS/GLOB

In Australia, all eyes are on Andrew Hauser, deputy governor of the RBA, who is due to speak later on Thursday in Canberra. He is expected to talk about trust in the transmission of monetary policy and could be asked about how the latest slide in oil prices could affect monetary policy.

Elsewhere, news broke that a 188-year-old department store chain, David Jones, entered administration on Thursday, while National Australia Bank reported a sharp drop in its annual profits.

"There are signs that activity in Australia is now slowing," said Diana Mousina, deputy chief economist at AMP.

"Slower economic growth means a softer labour market and we expect the unemployment rate to rise towards 5% in mid-2027 (from current 4.7%). But this is at the lower end of Australia's usual experience."

Swaps imply just a 6% chance that the RBA will lift interest rates again next month with 6 basis points of additional tightening by early next year. Rate cuts are coming into view, with a quarter-point move fully priced by the end of the year.

Across the Tasman, there is a 60% probability that the Reserve Bank of New Zealand will raise interest rates by a quarter point in December after it shocked markets by holding policy steady last month in a razor-thin vote.

New Zealand also heads to the polls on Saturday, with Prime Minister Christopher Luxon's National coalition government facing a voter backlash over the high cost of living, rising unemployment and a weak economy. Data showed on Wednesday the jobless rate climbed to an 11-year high of 5.7% in the third quarter.