Australia, NZ dollars near 1 month highs on BoC rate outlook

SYDNEY: The Australian and New Zealand dollars hovered near recent one-month highs on Thursday with major commodity-linked currencies getting a boost from a hawkish tilt by the Bank of Canada which expects to start tightening policy next year.

The BoC signalled it could start hiking interest rates in late-2022, providing a lift to the Canadian dollar, with small spillovers to other commodity currencies such as the Aussie and the kiwi dollars.

The Australian dollar was last at $0.7750, not far from a one-month high of $0.7816 reached earlier this week.

Next stop is around $0.7820 levels with solid chart support seen around $0.7720 region.

The New Zealand dollar was flat at $0.7212 after going as high as $0.7227 on Tuesday, a level not seen since March 18.

"The hawkish tilt by the Bank of Canada (BoC) was the biggest event overnight," Tapas Strickland, economist at the National Australia Bank, wrote in a morning note.

"The key question for markets is does the BoC statement prove to be a watershed moment for central banks in which they revert back to outcomes-based guidance as the data improves and away from calendar-based guidance that was calibrated in the depths of the pandemic?"

The BoC held its overnight rate at 0.25% on Wednesday and signalled it could start raising rates late next year as it sharply boosted its outlook for the Canadian economy and reduced the scope of its bond buying program. The Canadian dollar jumped 0.8%.

Investor attention will next be on US Federal Reserve Chair Jerome Powell next week as well as on the Reserve Bank of Australia's (RBA) monthly policy meeting on May 4, Strickland added.

Australia's unemployment rate has fallen much quicker than forecast led by a boom in the jobs market thanks to timely and sharp monetary and fiscal stimulus as well as the country's success in curbing the pandemic and allowing its domestic economy to largely reopen.

Other domestic data in both Australia and New Zealand have also surprised expectations.

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

Australian government bond futures were mixed, with the three-year bond contract down a tick at 99.73. The 10-year contract rose 3 ticks to 98.34.