SYDNEY: The Australian and New Zealand currencies found their footing on Thursday, after markets sensed the end of a great tightening cycle by the Federal Reserve, although they remain vulnerable to risk sentiment amid persistent fears about banking turmoil.
The Fed raised its benchmark funds rate by 25 basis points on Wednesday as expected, but dropped language about “ongoing increases” being needed in favour of “some additional” rises, as it waits and watches wobbling confidence in banks.
The Aussie surged 0.7% to $0.6730, after a late tumble on Wall Street led to a pullback in the currency from its 2-1/2 week top of $0.6759. It now faces resistance at the 200-day moving average of $0.6760 and has support at $0.6657.
The Kiwi dollar also gave up overnight gains but was 0.7% firmer at $0.6267 on Thursday.
Comfortably above the 200-day moving average of $0.6160, it faces resistance at the March peak of $0.6309. “Now that the FOMC meeting has passed, AUD/USD may find further support in the near term, if the perceived health of the banking sector continues to improve,” said Carol Kong, a currency strategist at CBA.
“But we still consider AUD/USD is vulnerable to the downside until the banking issues are fully resolved.”
On Wednesday, US Treasury Secretary Janet Yellen said she had not considered or discussed “blanket insurance” for US banking deposits without approval by Congress as a way to stem turmoil caused by two major bank failures this month.
Australia, NZ dollars struggle as US, European interest rate outlook rises
That drove a tumble of 15% in shares of First Republic Bank , with banking stocks weighing on major Wall Street indices.
Fed funds futures imply only an even chance of one more hike and rate cuts of an accumulative 60 basis points by the end of this year.
Markets have priced in a mild rate cut of just 25 basis points for the Reserve Bank of Australia by the end of this year, providing some marginal support for the currency.
Australian yields lagged movements overseas, with the three-year government bond yields easing 8 basis points to 2.891% and the ten-year yields falling 7 bps to 3.295%.
In New Zealand on Thursday, central bank chief economist Paul Conway warned that monetary policy would have to do more work if inflation expectations did not fall.