SYDNEY: The Australian and New Zealand dollars gained against the greenback to stand just below resistance levels on Monday, with traders looking to the local consumer price reports this week, which are expected to show inflation peaking.
The Aussie edged 0.3% higher to $0.6992, just a touch below the key level of 70 cents which it has struggled to stay above. It gained almost 0.9% on Friday, helping reverse earlier losses in the week, and has support at the 14-day moving average of $0.6920.
The kiwi was standing at $0.6482, after finishing the week with a strong gain of 1.4% to as high as $0.6530. It has support at $0.6250. Markets in China, Hong Kong, Singapore, Malaysia, South Korea and Taiwan are all closed for Lunar New Year holidays.
“Overall, holidays across Asia – and one in Australia itself – will drain FX market liquidity and limit inspiration for the Aussie this week,” said Sean Callow, a senior currency strategist at Westpac.
“But there is still plenty of room for movement in interest rates as we see Q4 CPI in Australia and New Zealand, along with US Q4 GDP.
The data run should determine whether AUD/USD can make a run at the August 2022 highs around 0.7135.“
Australia, NZ dollars recover ground on a wobbly dollar; bonds rally
On Wednesday, both New Zealand and Australia will both data that is likely to show inflation peaked in the fourth-quarter, which will reinforce the case for a slowdown or even a pause in the global tightening cycle with worse-than-feared US data in the past week fuelling concerns of a global recession.
In New Zealand, economists expect consumer inflation to slow slightly to 7.1% from 7.2% last quarter, as hefty rate hikes delivered so far deal a blow to demand.
Markets expect the Reserve Bank of New Zealand, whose hawkish bias has supported the local dollar, to hike 50 basis points next month, and see rates peaking around 5.3%, below the bank’s guidance of 5.5%.
Price gains in Australia likely accelerated to 7.5% from the previous 7.3%, although that is still below the forecast from the Reserve Bank of Australia for a peak of around 8%.
Markets still lean towards a quarter-point hike from the Reserve Bank of Australia next month, but talks of a pause are on the rise after softer jobs data last week.
Given the recession worries, markets have priced out almost any chance the Fed could move by 50 basis points next month and have steadily lowered the likely peak for rates to 4.75% to 5.0%, from the current 4.25% to 4.50%.
The yield on three-year bonds edged up to 3.021% on Monday, compared with last week’s close of 2.994%. The 10-year bond yield rose 6 basis points to 3.463%.
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