Australia, NZ dollars tread water ahead of Fed meeting

SYDNEY: The Australian and New Zealand dollars were steady on Wednesday with currencies generally treading water ahead of a US Federal Reserve meeting where policymakers are expected to reiterate their dovish policy stance despite rosier economic projections.

The Australian dollar was flat at $0.7746, drifting away from a recent one-week high of $0.7801 around which lies critical chart resistant. Key support for the Aussie is seen around $0.7710.

The New Zealand dollar was mostly unchanged at $0.7193. It sees strong support at $0.7100 while facing resistance at $0.7200 and $0.7267.

Economists expect the Fed to forecast the US economy will grow in 2021 at the fastest rate in decades, with unemployment falling and inflation rising, as the COVID-19 vaccination campaign gathers pace and a $1.9 trillion relief package washes through to households.

Financial markets are pricing in three interest rate hikes through end-2023 so all eyes would be on the Fed's 'dot plots' which signals the outlook for rates.

The Fed has kept interest rates pinned near zero for the past year, and has promised to keep them there until the economy reaches full employment, and inflation has hit 2% and is on track to exceed that pace for some time.

"Another factor to watch is Chair Jerome Powell's push back on long-end bond yields," said Chris Weston, Melbourne-based strategist at Pepperstone.

"Could we be entering a realm where the Fed allows market forces more independence?"

Global bond yields surged late last month on optimism about a faster-than-expected economic recovery world over and bets major central banks would soon step back from their dovish positions.

The Reserve Bank of Australia (RBA) last week dismissed rate hike talks while recommitting to its three-year yield curve control target at 0.1%. On Tuesday, minutes of its March 2 meeting showed policymakers were not expecting inflation and wage growth to rise material before 2024 at the earliest.

On Wednesday, Assistant Governor Chris Kent reiterated the RBA's lower-for-longer rate view while signalling monetary policy will not be used to control asset price gains.

New Zealand government bonds rose, sending yields about 3-4 basis points lower at the long-end of the curve.

Australian government bond futures declined, with the three-year bond contract off 1 tick at 99.735. The 10-year contract slipped 3 ticks to 98.24.