SYDNEY: The Australian and New Zealand dollars lost ground on Monday as caution reigned ahead of US inflation data and a flurry of rate decisions from global central banks this week.
The Aussie eased 0.5% to $0.6773, breaking a three-day winning streak.
It has surged 10% since mid-October, driven by expectations that the US Federal Reserve will shift towards a slower pace of rate hikes.
But after hitting a three-month peak of $0.6851 a week ago, it has struggled to stay above the resistance level of 68 cents.
“Fundamental drivers justify higher levels, but the realisation is contingent on further USD weakness and evidence of China moving to live with COVID,” said Ray Attrill, head of FX strategy at National Australia Bank.
Stephen Halmarick, chief economist at Commonwealth Bank of Australia, said the Aussie was being dragged down by lower commodity prices and higher financial market volatility as well as a narrowing in the Australia-US two-year overnight indexed swap differential.
The kiwi was 0.4% lower at $0.6391, after hitting its second highest level in four months during the previous session. It faces resistance at Friday’s top of $0.6426, while having support at around 63 cents.
Data on Friday showed US producer prices increased at a faster-than-expected pace, fuelling concerns that the consumer inflation report expected on Tuesday may indicate inflation is sticky and interest rates may have to stay higher for longer.
Economists expect US core inflation to ease to 6.1% in November from a year ago, compared with a rise of 6.3% the previous month.
Australia, NZ dollars buoyed by improved risk appetite
On Wednesday, the Federal Reserve is widely expected to raise rates by 50 basis points, though focus would be on the central bank’s updated economic projections and Fed Chair Jerome Powell’s press conference.
Yields on Australian government bonds tracked US counterparts higher, with the yield on 10-year bonds increasing 8 basis points to 3.373%, and the yield on three-year notes rising 3 bps to 3.046%.
In addition to the Fed, the European Central Bank and the Bank of England are set to announce rate decisions on Thursday.
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