Australia, NZ dollars return to range prison after breakout fails

SYDNEY: The Australian and New Zealand dollars were stuck in familiar ranges on Tuesday, as uncertainty over the outlook for US monetary policy again overshadowed strong economic news at home.

The Aussie was a shade lower at $0.7742, after topping out at $0.7765 overnight. With last week's break down to $0.7646 having failed for bears, the currency was settling back into its well-worn range of $0.7675 to $0.7813.

The kiwi dollar stood at $0.7218, after meeting resistance at $0.7242. It never broke the range of the past six weeks or so, but did get down as deep as $0.7125 last week.

Both currencies had been in trouble before Friday's benign US payrolls report tempered talk of an early tapering by the Federal Reserve. The next focus was US consumer prices on Thursday where a high reading would likely lift the US dollar.

Australian data on Tuesday extended the run of upbeat news with NAB's closely-watched survey of business showing activity surging to record highs in May.

There was also promising news on the coronavirus lockdown in Victoria with Melbourne likely to see an easing in restrictions on Friday.

All of which only reinforced expectations the Reserve Bank of Australia (RBA) will take a first, albeit minor, step toward tapering at its July policy meeting.

Most analysts suspect the central bank will not roll over its current yield target of April 2024 to November 2024, but will announce another round of bond buying, perhaps with a weekly amount or some other flexible programme.

As a result, yields on the April bond are still down under 0.10% while the November bond pays 0.298%. Four-year yields are up at 0.60% as the market builds in the prospect of hikes in the cash rate by then.

Ben Jarman, an interest rate strategist at JPMorgan, says they no longer expect a shift to November which allows the RBA's 0.1% target to just mature over time.

He also expects another round of bond buying, though smaller than the current A$100 billion package which ends in September.

"We have been forecasting an A$50-75 billion purchase pace over 4Q21/1Q22 as a compromise measure, given that on our forecasts the Fed's tapering discussion would be reasonably advanced by September," Jarman said.

There could be some clues on the outlook when RBA Assistant Governor Chris Kent speaks on Wednesday, followed by a speech from Governor Philip Lowe on June 17.