SYDNEY: The Australian and New Zealand dollars were trying to sustain a rally on Tuesday as speculators took some profits on short positions and Australia’s central bank signalled another rate hike was on the cards for June.
The Aussie clambered up to $0.6996 and away from a two-year trough of $0.6829 touched last week.
Resistance now lies at $0.7030 and $0.7055.
The kiwi firmed to $0.6327, having bounced from $0.6229 support overnight. Still, a break above $0.6400 was needed to improve the bearish technical background.
The fact the currencies could rally at all, considering Monday’s dire economic data from China, suggested both were oversold and due a break from selling.
“While tentative, AUD/USD may be finding a base as market participants digest the news that the Chinese economy will be weak until the lockdowns ease,” said Joseph Capurso, head of international economics at CBA. “But we are cautious about definitively calling a bottom.”
The Aussie got some help from minutes of the Reserve Bank of Australia’s (RBA) last policy meeting, which dropped a heavy hint that another rate rise was coming in June.
June futures dipped to fully price in a quarter-point hike to 0.60% on June 7, and have rates reaching 1.35% by August following inflation data for the second quarter.
“We expect upside risks to inflation to materialise in Q2 and forecast trimmed mean inflation to rise to 5.0%, much stronger than the RBA’s forecast of 4.5%,” said Ben Udy, an economist at Capital Economics.
Australia, NZ dollars toppled by China data shock
“That will prompt the Bank to ramp up the pace of tightening, lifting rates by a larger 40bp in August,” he argued.
“If we’re right then the cash rate should reach 2.25% by the end of this year.”
Core inflation spiked to 3.7% in the first quarter, forcing the RBA to sharply lift forecasts to show it above the central bank target band of 2% to 3% until late 2024.
Also important will be wages figures for the first quarter due on Wednesday, expected to show annual growth picking up to 2.5%. Jobs data for May on Thursday could show unemployment falling under 4.0% for the first time since the early 1970s.
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