SYDNEY: The Australian and New Zealand dollars flatlined on Thursday after another rally faltered overnight, though the prospect of higher interest rates at home helped put a floor under both.
The Aussie was back at $0.6927, having failed to clear resistance around $0.6996 overnight.
Major support comes in at the week’s low of $0.6856, while the recent eight-month top is some distance away at $0.7158.
The kiwi dollar faded to $0.6311, after again meeting resistance at $0.6350. Support lies at $0.6271 and the recent peak is all the way up at $0.6537.
Their US counterpart continues to bask in the glow of last week’s stunning jobs and services data, which caused a painful squeeze on short dollar positions that will not be soon forgotten.
The Aussie has found some support from a hawkish turn by the Reserve Bank of Australia (RBA) which surprised many this week by signalling further rate increases ahead, quashing any talk of a pause in its tightening cycle.
Markets now see a chance the 3.35% cash rate could peak up at 4.1%, compared to 3.60% a couple of weeks ago.
That has seen three-year yields rise 25 basis points so far this week to 3.25%, while the yields curve has flattened as investors price in the risk of a deeper economic slowdown this year.
“We now expect further 25bp rate hikes at both the March and April Board meetings, and this will take monetary policy into deeply restrictive territory,” said Gareth Aird, head of Australian economics at CBA.
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“This means the probability of a soft landing for the economy is lowered significantly, and we think policy easing will be required in Q4 if Australia is to avoid a hard landing.”
The RBA issues its quarterly outlook on the economy on Friday and will likely revise up forecasts for core inflation and wages, while headline inflation is not seen slowing to the top of the 2-3% target band until mid-2025.
Markets still assume the Reserve Bank of New Zealand (RBNZ) will hike rates by half a point to 4.75% at its policy meeting on Feb. 22, but also imply around a 25% chance it could go by a super-sized 75 basis points.
Two-year swap rates are back up at 4.94%, having been as low as 4.675% at one stage last week.
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