Australia, NZ dollars keep rally going as data-fest looms

SYDNEY: The Australian and New Zealand dollars were looking to extend a two-week rally on Monday as investors cut back on long positions in the US dollar ahead of a packed schedule of major local and offshore economic data.

The Aussie added 0.3% to $0.7180, having finally cracked $0.7126 resistance last week with a 1.5% rally.

The next major chart barrier is the 200-day moving average at $0.7260.

The kiwi dollar also firmed 0.3% to reach $0.6552, after clearing resistance around $0.6514 on Friday.

The next hurdles are $0.6567 and $0.6645.

The rally owes much to a pullback in the US dollar and speculation the Federal Reserve will go slower once it has hiked by 100 basis points over the next two months.

Futures are priced for the Reserve Bank of Australia (RBA) to hike by a quarter-point in both June and July, and by 50 basis points (bps) in August following inflation data for the second quarter which are likely to be red hot.

Australia, NZ dollars suffer relapse as China clouds outlook

A raft of domestic data out this week should keep that tightening on track, even though gross domestic product on Wednesday is forecast to show growth of just 0.7% for the first quarter, after a huge 3.4% jump the previous quarter.

Much of that slowdown will be due to strong domestic demand sucking in imports, while floods and coronavirus also disrupted mining and consumer activity.

“Momentum in the economy over Q1 was strong and is more accurately reflected by the solid lift in employment over the quarter rather than what we expect to see in the national accounts,” said Harry Ottley, an economist at CBA.

“At the margin, the data could feed into policy deliberations on the size of the expected rate hike at the June Board meeting - either 25bp or 40bp,” he added.

“We believe the case to go with a ‘business as usual’ 25bp hike is strong.”

The Reserve Bank of New Zealand (RBNZ) has been far more aggressive, having already hiked by 50 bps twice to 2.0% and aiming to reach at least 3.25% by year end.

That outlook could change should the economy slow more quickly than expected, the RBNZ’s chief economist told Reuters on Monday.

However, he emphasised the Board was really worried that inflation expectations could run away from them, suggesting they were inclined to keep tightening at pace.