SYDNEY/WELLINGTON: The New Zealand and Australian dollars held their ground against the greenback on Wednesday and consolidated recent gains on the yen and sterling as investors waited for an interest rate decision from the Reserve Bank of New Zealand (RBNZ).
While the RBNZ is considered almost certain to leave its benchmark cash rate at a record low 2.5 percent on Thursday, but there is considerable uncertainty about what stance it will choose for its statement.
On the one hand booming house prices would seem to call for a hawkish slant, but a high currency and a deepening drought argue for a softer tone.
"Growth is picking up and house prices are continuing to rise, which has prompted markets to price in hikes from next year," says Paul Bloxham, HSBC's chief economist for Australia and New Zealand.
"But the RBNZ has flagged concerns about the high NZD and is likely to be cautious about being too hawkish in the official statement, for fear of further appreciation."
The uncertainty kept the kiwi dollar little changed on the day at $0.8252, having slipped to $0.8236 earlier. Support is seen around $0.8210 and more solidly at the 200-day moving average of $0.8180, while $0.8280 is resistance.
The Australian dollar was steady at $1.0316, stalling a bit after reaching a 2-1/2 week high of $1.0336.
Despite Wednesday's lacklustre performance, the Aussie looked to have broken a downtrend channel that stretches back for the past seven weeks. Initial resistance is seen around $1.0350/70, a level that capped the currency in February.
The Aussie has been supported by recent solid domestic data including an increase in consumer confidence to 27-month highs as lower rates and rising asset prices work their magic on the economy.
All of which have led investors to sharply scale back expectations on rate cuts in the past couple of weeks. Swap markets are now giving a less than one-in-five chance of a quarter point easing to a record low of 2.75 percent in April.
Over the next 12 months, the market has priced in a mere 23 basis points of easing, compared with 45 basis points at the start of last week.
"We remain of the view that the RBA's work is almost done, with another month or two of 'wait and see' before delivering a final cut to 2.75 percent on a favourable Q1 inflation report," said Annette Beacher, head of Asia-Pacific Research at TDSecurities.
This contrasts with a marked weakening in the UK economy, which has narrowed the odds for further monetary easing there. Japan is also expected to take aggressive measures soon.
That has seen both Antipodean currencies reach four-year highs against the yen and scale historic peaks on sterling.
The Aussie was last at 98.69 yen, having hit a peak above 99.00 in the previous session. The kiwi fetched 78.97 yen, not far off a high of 79.91 set on Friday.
Sterling was at A$1.4475 versus a low of A$1.4374 plumbed on Tuesday. Against the kiwi, it was at NZ$1.8088 , near Tuesday's trough of NZ$1.7982.
Australian government bonds rose with the three-year bond contract up 0.025 points at 97.010, while the 10-year contract gained 0.04 points at 96.445.
New Zealand government bonds also firmed, pushing yields as much as 7 basis points lower on the short-end of the curve.
Comments
Comments are closed for this article.