Australia, NZ dollars edge higher, bonds boast bumper month

SYDNEY: The Australian and New Zealand dollars edged higher on Friday as banking fears calmed a little, while bonds were boasting their best month in a decade after expectations for rate hikes were reined in. The Aussie inched to $0.6716, leaving it 1% firmer for the week but flat on the month.

Support lies at $0.6660 and $0.6625, with resistance around $0.6720 and $0.6752.

The kiwi dollar reached $0.6268, and was up just over 1% for the week and the month.

Major resistance lies at $0.6309, with support at $0.6182.

Both currencies were mere bystanders compared to bonds, where Australian three-year yields were down 65 basis points for the month in the biggest drop since 2012.

The yield of 2.94% was also far below the 3.6% cash rate as markets wagered the Reserve Bank of Australia (RBA) was near done with tightening after 10 straight rate hikes.

Futures show an 87% chance the RBA will stand pat at its April policy meeting next week and only a modest risk of a rise at all this year.

Australia, NZ dollars edge higher, data favours rate doves

That was a radical change from early in the month when rates were seen reaching 4.1% or higher.

“We now forecast rates have peaked at 3.6% compared to our prior call of 4.35%,” said Prashant Newnaha, a senior rates strategist at TD Securities. He noted a sharper-than-expected slowdown in February inflation reported this week meant it was likely that consumer prices for the entire first quarter would undershoot RBA forecasts and allow time for an extended pause.

“If we are wrong, we would expect the RBA to hike 25 bps in April and then move to the sidelines, rather than pause in April and hike in May sending mixed signals to the market,” he added.

Of the four major local banks, ANZ and NAB still expect a hike next week, while Westpac and CBA look for a pause.

Gareth Aird, head of Australian economics at CBA, thinks the RBA will make it a “hawkish pause” by reaffirming its tightening bias, allowing scope to hike in May should coming data prove strong.

The Reserve Bank of New Zealand (RBNZ) also meets next week and markets are almost fully priced for another rate rise of 25 basis points to 5.00%.

A further move to 5.25% is expected by July, but investors doubt rates will reach the RBNZ’s projected top of 5.5% given the economy is possibly already in recession.