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SYDNEY: The Australian and New Zealand dollars stalled on Wednesday after a bullish run of gains, as traders braced for any upside surprise in the upcoming US inflation report and what it might mean for the Fed’s aggressive tightening ahead.

The Aussie was off 0.3% at $0.6489, after rising 0.4% overnight to as high as $0.6551, the strongest level since late September.

Resistance is at the 55-day moving average of around 0.6544.

The kiwi eased 0.4% to $0.5933, having also hit a fresh seven-week high of $0.5999 overnight. Resistance is around 60 cents.

Data on the US consumer price index (CPI) is due for release on Thursday, with economists forecasting a decline in both the monthly and yearly core numbers to 0.5% and 6.5%, respectively.

The two currencies, which had tumbled this year on concerns about global growth from a synchronised global tightening campaign, have been enjoying some respite lately as markets priced in a slowdown in rate hikes by central banks.

“For FX, we see a fading of the carry advantage of the USD & rates volatility, seeing the USD fall against G10 currencies… Specifically, we prefer longs in AUD and NZD,” said George Tharenou, chief economist at UBS.

Australia, NZ dollars hold onto gains as risk appetite rebounds on China

Tharenou expected the Aussie to reach 0.70 against the dollar by end-2023 and saw the kiwi at 0.62 by the end of that same year.

However, analysts at CBA believe the Aussie has further to fall.

“Our expectation of a global recession in 2023 is not fully priced in yet which will ultimately bear down on AUD through lower commodity prices and higher financial market volatility,” said Kim Mundy, a currency strategist at CBA.

“At the same time, the Chinese economic outlook is unlikely to brighten at least until early next year.” Indeed, the latest data showed China’s economy is deteriorating fast.

Factory gate prices for October fell for the first time in nearly two years, underlining faltering domestic demand as strict COVID curbs, a property slump and global recession risks hammered the economy.

Domestically, Reserve Bank of Australia deputy governor Michele Bullock will deliver a speech at 8:05pm local time (0905 GMT) on the country’s economic outlook and markets are on the lookout for any signs of a pause in the central bank’s rate hike path.

Markets are leaning toward a hike of 25 basis points at the December policy meeting but they have also priced in a 30% probability of a pause.

They now see rates peaking around 4.1% in the second half of next year.


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