Tuesday, 11 December 2012 10:53
SYDNEY/WELLINGTON: The Australian and New Zealand dollars held close to multi-week highs on Tuesday, drawing support from expectations of fresh US economic stimulus measures, though investors kept a wary eye on developments in Italian politics.
The Aussie paused at $1.0479, from $1.0485 early, having risen as high as $1.0506 overnight. It remained very close to an 11-week peak of $1.0515 set last week.
Investors were seen reluctant to take big bets ahead of a two-day US Federal Reserve meeting, which begins on Tuesday.
There is speculation the Fed could surprise by bumping up its monthly bond purchases above $45 billion to press borrowing costs lower. Such an outcome could see the greenback come under pressure and send commodity currencies higher.
For now, traders said the Aussie was hemmed in by central bank and option players on both sides of the market.
There was talk of large option barriers at $1.0525 and $1.0550, while immediate support was found at $1.0465, ahead of Australian exporters bids at $1.0450.
The Aussie briefly drifted lower after a private report showed Australian business confidence slumped to its weakest level in more than three years in November.
That, combined with weak conditions, only added to the case for further cuts in interest rates following last week's quarter point easing to a record-matching low 3.0 percent.
"While we pencil in one final cut in mid-2013, today's poor report does, at the margin, increase the chance that the RBA may have to act sooner rather than later," said Alvin Pontoh, a strategist at TD Securities in Singapore.
Investors are pricing in around a 50-50 chance of a cut in the cash rate to 2.75 percent in February, when the Reserve Bank of Australia (RBA) holds its next policy meeting. Markets see a further easing to 2.50 percent or lower next year.
In contrast, investors are factoring in steady rates of 2.5 percent in New Zealand for the next 12 months, sending the Aussie to a one-month low of NZ$1.2527 against its neighbour.
The Australian dollar has fallen more than 2 percent versus the kiwi since it hit a two-month high of NZ$1.2831 mid-November.
Center>Copyright Reuters, 2012