Australia, NZ dollars get much needed relief as risk rebounds, bonds retreat

SYDNEY: The Australian and New Zealand dollars got a much needed lift on Monday as fears of a major escalation in the Middle East subsided following Israel’s retaliatory drone strike on Iran, while local bonds also lost some of their safe-have shine.

The Aussie bounced 0.3% to $0.6440, having fallen 0.7% last week to plumb a five-month low of $0.6363. It faces resistance at the 10-day moving average of $0.6470, while major support is at November’s low of $0.6340.

The kiwi dollar gained 0.4% to $0.5915, after losing 0.8% last week to test a major support level of $0.5863. That remains the near-term support but resistance is around $0.5940.

The two benefited from a rebound in risk sentiment on Monday after Tehran downplayed Israel’s retaliatory strike against Iran, in what appeared to be a move aimed at averting regional escalation. The attack from Israel on Friday sent markets into a tailspin.

Australia, NZ dlrs slide

Australian bonds retreated on Monday as risk appetite perked up. The three-year bond futures dropped 8 ticks to 96.12 while the 10-year slumped 9 ticks to 95.65.

The Australian dollar is also bracing for inflation data on Wednesday. Analysts expect consumer inflation ticked up to 0.8% in the first quarter, from 0.6% previously, although the annual rate likely eased to 3.5% from 4.1%.

“AUD/USD can fall further if the conflict in the Middle East escalates further and/or the Australian Q1 24 CPI is softer than market expectations as we forecast,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

CBA expects the quarterly rate inflation stood at 0.7%, bringing the annual figure to 3.4%.

The inflation figures will be critical to the Reserve Bank of Australia’s policy decision on May 7. The central bank is widely expected to hold rates steady at 4.35% for a fourth meeting, but any good news on inflation could likely see policymakers drop a mild tightening bias.

Markets only expect a total of 18 basis points in rate reductions this year, meaning even one rate cut is not guaranteed.