Australia, NZ dollars cling to gains, near-term fate rests with Fed

SYDNEY: The Australian and New Zealand dollars were hanging onto much-needed weekly gains on Friday as investors awaited word from the US Federal Reserve on its tapering plans, which could decide if their rally lives or dies.

Much depends on what Fed Chair Jerome Powell might say on tapering in a keynote speech later on Friday, with any hint of hawkishness likely to send the US dollar higher once more.

Australia, NZ dollars consolidate after running into resistance

The Aussie had edged back to $0.7241, from the week's top around $0.7280, which is proving to be stiff resistance. It was up 1.4% for the week, but that follows a 3.2% dive the week before and the trend was still downward.

Likewise, the kiwi dollar had faded a little to $0.6949 from a peak of $0.6983, but was still up 1.4% for the week so far. That was comfortably above the recent 10-month trough of $0.6807, but a break of $0.7000 was needed to improve the technical background.

"The A$ appears to be capped by key resistance between $0.7270 and $0.7290, and we still see an eventual move down towards $0.7000," said Richard Franulovich, Westpac's head of FX strategy.

"We remain sceptical of a move higher, given the sharp acceleration in domestic Covid cases and rising domestic restrictions."

The economic damage of lockdowns was all too clear in data showing Australian retail sales slid 2.7% in July, with an even deeper decline expected this month as restrictions widened to Melbourne and Canberra.

New Zealand eased tough nationwide lockdown measures on Friday, although businesses and schools will still be closed and its biggest city Auckland will remain shut for longer. It reported 70 new COVID-19 cases on Friday.

The sudden outbreak earlier this month forced the Reserve Bank of New Zealand (RBNZ) to delay its first rate hike, though officials continue to signal an appetite to tighten soon.

Markets imply around an 81% chance of a rise in October, with a good chance of another in November.

"If the measures succeed in reining in the outbreak before long, the RBNZ may still hike in October," said Ben Udy, an economist at Capital Economics.

"But we still assume that the more contagious Delta variant will prove too difficult to control to allow a marked easing of restrictions over the coming weeks and expect the Bank to delay the hike until next year."