Australia, NZ dollars hold near multi-month highs, resistance looms large

SYDNEY: The Australian and New Zealand dollars held near 2-1/2-month highs on Monday, riding on greenback debt woe, though both are approaching key chart levels that could test the rally.

The Aussie was steady at $0.7165 after rallying 0.8% on Friday to end last week 1.2% higher.

That was the eighth consecutive week of gain, the longest run since 2020, but resistance looms large at 72 cents and $0.7278.

The kiwi was little changed at $0.5975 having risen 0.6% on Friday to finish the week 1.5% higher. The next barrier was at a double top of $0.5993.

All eyes are on what US Treasury Secretary Scott Bessent might do after his intervention to cap longer-dated Treasury yields failed to calm market concern about fiscal spending and inflation, with the US dollar emerging as the main casualty.

“AUD/USD can edge higher above 0.72 this week mainly because of a weaker USD in our view,” said currency strategist Joseph Capurso at Commonwealth Bank of Australia.

Still, a new year-to-date high above 0.7278 remains unlikely, he said.

“Bessent raised expectations of a budget consolidation program to be released this week… A modest consolidation would disappoint the hopes of market participants and weaken the USD.”

Down Under, the Reserve Bank of Australia will release minutes of its August policy meeting where the board kept its key interest rate steady at 4.35% for a second time after three hikes this year. Policymakers have, however, said the rate could go higher if inflation risk materialises.

Monthly inflation data is due on Wednesday. Economists polled by Reuters estimated consumer prices rose 0.8% in July versus a month earlier, but a base effect meant annual inflation likely slowed to 3.2% from 3.8%.

The trimmed mean measure of inflation likely eased to 3.5% from 3.6%.

In New Zealand, data on Monday showed retail sales fell 0.5% in the second quarter of the year as higher energy prices drove the largest quarterly fall in fuel sales.

Swaps still imply a 90% probability that the Reserve Bank of New Zealand will raise its policy interest rate to 2.75% on Wednesday next week, in part because the bank has repeatedly flagged the need to make policy less stimulative.

There is much uncertainty about when the next hike might come, with market participants split on the chance of a third hike in October.