Australia, NZ dollars rally as risk sentiment survives US inflation test

SYDNEY: The Australian and New Zealand dollars were pushing higher on Wednesday, as global markets refused to be spooked by a well-flagged jump in US inflation, sending Treasury yields lower and undermining the US dollar.

The Aussie firmed to $0.7657, after rallying from support at $0.7585 overnight. It needs to clear resistance at $0.7677 to end the deadlock seen in the last few weeks.

The kiwi dollar climbed 0.4% to $0.7080, extending a bounce from support around $0.7005 overnight. That took it past stiff chart resistance at $0.7070, a barrier that had held for the past three weeks, and opened the door to $0.7140/60.

The Reserve Bank of New Zealand (RBNZ) earlier surprised no one by keeping rates at 0.25% and maintaining its bond buying programme at a policy meeting.

The message was again dovish, with the bank noting the economy had slowed recently and prolonged stimulus would be needed to get employment inflation up to desired levels.

"We are more bullish and expect inflation to be above the RBNZ's target throughout most of the next two years," said Ben Udy, Australia & New Zealand economist at Capital Economics.

"We still expect the Bank to raise rates towards the end of next year."

Yields on NZ 10-year bonds were off 4 basis points at 1.71%, though that largely mirrored a decline in US yields overnight.

Australian 10-year bond yields eased 3 basis points to 1.69%, aided in part by Tuesday's well-received sale of A$14 billion ($10.70 billion) of new 2032 government bonds.

The offer drew solid demand from foreign investors, who took just over 51% of the issue. Asia-ex Japan investors led the bidding by taking 29.2% of the bonds, while the UK bought almost 10% and the US 6.6%.

Funds managers accounted for 36% of the sale, while banks bought 32% and hedge funds 24.3%.

Australian data was upbeat as the Westpac-MI consumer sentiment index surged to an 11-year peak in April, defying worries about the government's vaccine rollout. That followed a strong survey of businesses out on Tuesday.

"Consumers are in a sweet spot at the moment. The labour market is strong, accumulated savings are elevated and it appears households are resilient to a slow vaccine rollout," said CBA economist Belinda Allen.

"Both consumers and businesses are optimistic about the economic outlook and this bodes well for spending, hiring and investment."