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Australia, NZ dollars in tight bands awaiting clues on inflation

  • Australian government bond futures eased too, with the three-year bond contract off 1 tick at 99.74 ticks, implying yield of 0.25% when the cash rate is at 0.1% now.
Published May 18, 2021
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SYDNEY: The Australian and New Zealand dollars held tight ranges on Tuesday as investors looked for clues to determine if the global economic recovery would be strong enough to lift inflation and warrant policy tightening.

The Australian currency was last up 0.2% at $0.7786. It has traded in a $0.7675/$0.7891 range since mid-April with support coming from high commodity prices though a dovish central bank is restraining the currency.

The New Zealand dollar rose 0.3% to $0.7236. The kiwi has been in a $0.7116 and $0.7304 band over the past two months.

Investors have been focussed on any new pieces of information that could help inform their view on whether central banks would start tapering some of their emergency stimulus measures that were put in place at the height of the coronavirus pandemic last year.

In Australia, data due on Wednesday will likely show first-quarter wage growth stuck around 1.4%, half what the country's central bank says is needed to spark inflation.

On Thursday, April labour force figures will show another strong month of employment growth but jobless rate at a still high 5.6%.

The Reserve Bank of Australia (RBA) believes full employment, the level where the labour market is tight enough to generate wage pressure, could be around 4% or lower.

In the United States, a host of Federal Reserve policymakers are scheduled to speak this week, and the US central bank will also release minutes from its most recent meeting, which may give indications about where monetary policy is headed this year.

Dallas Fed President Robert Kaplan on Monday reiterated his view that he does not expect interest rates to rise until next year, fuelling a further decline in bets that inflationary pressure could force the Fed to act sooner.

"Markets and commentators alike are fixated on inflation, as signs suggest it is coming and will be anything but transitory," Kristiaan Rehder, fund manager at Kardinia Capital.

"Most central banks - including the Reserve Bank of Australia - are of the view that any up-tick in inflation will only be temporary. The bond market, however, has already begun to price in an increase in inflation."

Australian government bond futures eased too, with the three-year bond contract off 1 tick at 99.74 ticks, implying yield of 0.25% when the cash rate is at 0.1% now.

The 10-year contract fell 3.5 ticks to 98.27.

New Zealand government bonds slipped, sending yields about 1.5 basis points higher across the yield curve.

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