SYDNEY: The Australian and New Zealand dollars held firm on Tuesday as data showed Australian business activity and costs surging but consumers turning more pessimistic by the day, pointing to higher rates in the short term but lower yields further out.
The Aussie edged up to $0.6992, having bounced 1% overnight to continue the see saw pattern of the last couple of weeks. Support lies around $0.6970 and $0.6870, with resistance at $0.7000 and $0.7048.
The kiwi dollar stood at $0.6284, after rallying 0.7% overnight and away from last week’s low at $0.6214. It faces resistance around $0.6315.
Local data showed the continuing dichotomy between what consumers say and what they actually do, with confidence in the dumps but spending resilient.
Particularly notable was the strength seen across NAB’s influential business survey, with sales and employment jumping while input costs and retail price growth hit records.
That would seem to argue for another hike of 50 basis points by the Reserve Bank of Australia (RBA) at its September meeting, though the market is split on the chance.
Safe haven dollar eases as risk appetite lifted by jobs data
“Businesses are continuing to report that conditions are really strong,” said NAB group chief economist Alan Oster.
“Importantly, the strength is showing up across the board in terms of industries and across the country.”
“For now, it appears firms are still finding that they can pass on higher costs to their customers, but it remains to be seen how long that can last before demand starts to deteriorate.”
Swaps imply around an even chance of a half-point hike to 2.35% next month and rates peaking around 3.35% by April, to be followed by cuts in late 2023 and 2024.
The bond market is also foreshadowing an eventual slowdown in growth and inflation, with three-year yields just 22 basis points above the 10-year.
That left the yield curve at almost its flattest since 2010, though nowhere near the inversion seen in Treasuries.
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