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[Improved risk sentiment supports Australian dollar, interest rate hike expectations help New Zealand dollar hit two-week high] 1. On Friday, both the Australian and New Zealand dollars shrunk from recent selling pressure. The market reacted positively to news of a possible extension of the Middle East ceasefire, oil prices fell under pressure, and global risk assets were generally boosted. The Australian dollar is currently trading around 0.7158 against the US dollar, holding onto most of Thursday's gains. The New Zealand dollar continued its upward trend, rising as much as 0.37% to 0.5955, a new high since May 13. 2. Reports indicate that the draft agreement to extend the ceasefire includes provisions for reopening the Strait of Hormuz. This news encouraged investors, but the feasibility of this arrangement in practice remains to be seen. 3. The mere possibility of reaching an agreement was enough to push the Australian dollar against the US dollar from an overnight low of 0.7098 to around 0.7160. The Australian dollar has risen about 0.5% this week, but has not yet broken through the resistance level near 0.7182. 4. Supported by expectations of an interest rate hike, the New Zealand dollar performed stronger, rising 1.7% in three trading days and poised to retest the May high of US$0.5991. Large-scale short covering in the Australian dollar also provided additional support for the New Zealand dollar. The Australian dollar fell to a six-week low of NZ$1.2026 against the New Zealand dollar, well below the high of NZ$1.2284 earlier this week. 6. The Reserve Bank of New Zealand (RBNZ) hinted on Wednesday that interest rates could be raised soon to address inflationary pressures from energy prices. The market currently expects an 80% probability of a rate hike in July, with rates potentially reaching 3.0% by the end of the year, peaking at around 3.50%. 7. Economists at Citigroup and Goldman Sachs believe the neutral interest rate will be between 2.50% and 2.75%, therefore expecting only two rate hikes in total. Economists at Westpac, however, predict the first rate hike may not occur until September, but in the long term, the central bank will have to raise rates to higher levels. 8. Westpac's chief economist for New Zealand, Kelly Ekhold, stated that he expects interest rates to rise by 25 basis points each in September, October, and December, and that rates need to rise above 4% to control CPI inflation. 9. In contrast, the Reserve Bank of Australia has already raised its interest rate to 4.35%. Recent weaker-than-expected employment and inflation data have prompted investors to significantly lower the probability of a June rate hike to only 5%. The market currently believes there is a 70% probability of a final rate hike this year to 4.60%, with the hike likely occurring in the fourth quarter.