Australia, NZ dollars lean on chart support after another setback

SYDNEY: The Australian and New Zealand dollars were back on the defensive on Wednesday as the recent see-saw action left them uncomfortably close to major chart supports.

The Aussie looked the more vulnerable at $0.7370, having slipped 0.6% overnight to test support at $0.7360. A breach of the latter would be bearish technically and open the way for a retreat to at least $0.7320.

The kiwi dollar stood at $0.7120, having dropped 0.5% overnight after failing at resistance around $0.7365. Support comes in at the 200-day moving average of $0.7099 and the November low at $0.7074.

Richard Franulovich, head of FX strategy, at Westpac argued the pullback in metals prices was a headwind for the resource-sensitive Aussie. He noted iron ore, Australia’s biggest export earner, had fallen 56% since mid-year, while aluminium had shed 20% in just three weeks.

“The $0.7430/40 level remains an important cap for the AUD near term and further weakness is still expected back to the $0.7300/50 region,” he added.

Domestic data were a wash with consumer sentiment only nudging higher in November as relief over the easing of coronavirus restrictions was replaced by worries over family finances and inflation.

Markets globally are focused on a report on U.S. consumer prices due later in the day which are expected to show a further pick-up in inflation.

Any upside surprise would likely revive talk of an earlier start to rate hikes from the Federal Reserve and could lift the U.S. dollar.

The Reserve Bank of Australia (RBA) continues to push back against market pricing of any rise in domestic rates before 2023, though futures still tip a move by June or July next year.

The dovish stance has helped three-year bond futures steady at 98.945, having recently been as low as 98.540.

The Reserve Bank of New Zealand (RBNZ) on the other hand has already started its tightening cycle and is considered certain to hike again at its next meeting on Nov. 24.

Indeed, markets are pricing in around a one-in-three chance rates will rise by 50 basis points, rather than 25 basis points, given the stunning strength of recent jobs data.

“The RBNZ has few reasons to be dovish,” said analysts at Kiwibank in a note. “The labour market is as tight as it’s ever been and wages are set to rise materially.”

They expect a rise of 25 basis points to 0.75% this month and see the cash rate reaching 2% by the end of next year.