SYDNEY: The Australian and New Zealand dollars were clutching on to gains on Wednesday amid a sudden brightening in global risk sentiment and an acknowledgement by Australia's central bank that interest rates could rise this year.
A bounce in equity markets helped the Aussie up to $0.7130 and away from a recent 18-month trough of $0.6967.
The break of $0.7080 resistance improved the technical background, with the next target around $0.7180.
The kiwi dollar stood at $0.6630, having rallied 1% overnight and away from its recent 16-month low of $0.6531. It also cleared resistance at $0.6590, opening the way to a retracement target at $0.6710.
Australia, NZ dollars join bond rout as markets price for multiple hikes
The kiwi got a hand up from an upbeat jobs report which showed unemployment falling to an all-time low of 3.2% while wage growth firmed to a 12-year top of 2.8%.
Markets are now wagering the Reserve Bank of New Zealand (RBNZ) will hike no less than seven times this year.
"In the current environment of worryingly high inflation, and a labour market that has moved beyond full employment there is no time for the RBNZ to take a breather," said Jarrod Kerr, chief economist at Kiwibank.
"We now see the RBNZ hiking the cash rate at every meeting in 2022, taking the cash rate to 2.50% by November and a full six months earlier than we previously thought."
Australia's central bank is still sounding dovish, but did open the door to a rise in the 0.1% cash rate later this year if the economy continued to surprise with its strength.
Reserve Bank of Australia (RBA) Governor Philip Lowe said there were now clearly scenarios where rates could rise, a shift from his previous stance that a move was unlikely in 2022.
That was still too dovish for markets which had been fully priced for a hike by May, and futures grudgingly shifted out the likely lift-off date to June.
In any case, markets have for a while been pricing in rates of 1% or more by year end and it has provided scant support to the Aussie.
"What the RBA ends up doing relative to market pricing will be of some importance to AUD, though less so than what happens to the USD, to risk sentiment, and whether AUD re-connects with its traditional commodity price drivers," said Ray Attrill, head of FX strategy at NAB.
In particular, Australia's high resource prices would normally be associated with a currency closer to $0.7500, said Attrill.
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