Australia, New Zealand dollars tread water ahead of Fed meeting

SYDNEY: The Australian and New Zealand dollars held little changed against the greenback on Monday, as higher commodity prices and positive sentiment in their home markets were offset by uncertainty about US fiscal and monetary stimulus.

The Australian dollar, a liquid proxy for risk, was one basis point higher at $0.7534, hovering around its level of the past three trading sessions, after rallying 36% from its $0.5510 March low.

The New Zealand dollar was slightly higher at $0.7089, up from its $0.7085 close on Friday.

Traders are waiting to see if the US Federal Reserve will this week refine its forward guidance on policy at its meeting on Dec. 15-16, rather than buying more bonds, analysts said.

The market is also watching for a deal on fiscal stimulus by US lawmakers following months of negotiations on a new coronavirus aid bill.

"We expect AUD to continue to move higher, particularly against USD, where our negative house view on the latter comes into play," said Nomura rate strategist Andrew Ticehurst.

Rising iron ore prices, Australia's success in containing the novel coronavirus, global optimism with the advent of successful vaccines, and positive surprises around Australia's economic recovery have boosted the country's currency rally.

Bullish bets on the Aussie have risen in recent days with Nomura expecting the commodity-linked currency to rise to $0.7800 by the end of 2021, higher than its previous $0.7500 target. Westpac sees it at $0.8000 by the end of next year.

"Market participants do not appear to be waiting for the new year to deploy risk capital ... for the near term at least, the path of least resistance appears higher," said Nomura's Ticehurst.

In New Zealand, economists are predicting Thursday's quarterly data will show a large economic rebound for the country's gross domestic product.

New Zealand government bond prices were slightly higher, with yields about 2 basis points lower at the long-end of the curve.

Australian government bond futures were slightly higher, with the three-year bond contract up a tick at 99.830. The 10-year contract was 4 ticks higher to 99.0390.