SYDNEY: The Australian and New Zealand dollars ran into resistance on Tuesday after scaling multiple-week highs, as traders shifted their focus to the upcoming US Federal Reserve policy meeting amid easing fears about the global banking system.
The Aussie retreated 0.3% to $0.6702, after hitting a two-week high of $0.6743 overnight as a cautious return in risk appetite led European and US markets higher. It now has support at the 21-day moving average of 67 cents.
The currency was also dragged lower by minutes out on Tuesday showing that the Reserve Bank of Australia was ready to consider pausing its rate hikes in April, reinforcing market pricing that ruled out any chance of a further rate hike amid the banking turmoil. The kiwi dollar was 0.4% lower at $0.6220, having also hit a one-month high of $0.6309 overnight. It has support at the 21-day moving average of $0.6195.
“Both the A$ and NZ$ have been fairly resilient this month considering the extent of global market turbulence,” said Sean Callow, senior currency strategist at Westpac.
“Some of this likely stems from the perception that recent US and European banking stresses have little to do with China and Asia more broadly.”
Attention is now turning to the Federal Reserve policy meeting on Wednesday. The CME FedWatch tool shows pricing now implies about a 76% chance of a 25-basis point hike, but also a 24% chance that the Fed could cut.
Australia, NZ dollars give up rally as concerns over banking crisis linger
“We will be watching closely to see if the Fed pushes back against this … A softening in language could be read as an endorsement of current pricing,” ANZ analysts said in a note.
Futures have also priced in cuts of 60 basis points from the Fed by the end of this year.
Australian bond yields were marginally lower. Three-year government bond yields slipped 4 basis points to 2.779%, the lowest since early August, while ten-year yields eased 5 basis points to a seven-month trough of 3.209%.
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