Australia, NZ dollars subdued, market on tenterhooks ahead of US inflation data

SYDNEY: The Australian and New Zealand dollars were mostly steady on Wednesday, as traders braced for the release of US inflation data later in the day that could determine the future path of interest rates from the Federal Reserve.

The Aussie edged 0.2% higher to $0.6664.

On Tuesday, a rally stalled at the resistance level of $0.6680 and it finished with just a 0.2% gain. It now has support at $0.6620 and the 2023 low of $0.6564.

The kiwi dollar was up 0.1% at $0.6198, having dropped 0.4% to as far as $0.6185 overnight, a three-week low.

It has support at its 200-day average of $0.6160.

The U.S consumer price data could go a long way in shaping expectations for the Federal Reserve’s next meeting in May.

New York Fed President John Williams has said its policy path would depend on the incoming data.

Analysts expect the pace of gains in headline consumer inflation to ease to 0.2% in March on a monthly basis, while core inflation is seen slowing to 0.4% growth.

“It was a quiet session overnight ahead of key risk events later in the week. There was plenty of news flow, but not overly market moving,” said Tapas Strickland, head of market economics at National Australia Bank.

Markets currently see a 72.5% chance that the Fed will raise rates by another 25 basis points in May after Friday’s strong jobs report cemented expectations for a hike.

They have, however, priced in rate cuts of 40 basis points by the end of the year given the recent turmoil in the banking sector.

Australia, NZ dollars regain ground after reeling from hawkish US rate bets

Chicago Fed President Austan Goolsbee said on Tuesday the Fed should be patient about raising interest rates in the face of recent banking stress.

The International Monetary Fund on Tuesday trimmed its 2023 global growth outlook and warned that a severe flare-up of financial system turmoil could slash output to near recessionary levels.

News that Australia has reached an agreement with China to resolve their dispute over barley imports also helped improve sentiment for the Aussie dollar, while China’s record new bank lending in the first quarter reassured investors that the country’s economic recovery is on track.

Australian bond yields extended gains on Wednesday, with three-years rising 6 basis points to 2.930% and ten-years edging up 3 bps to 3.265%.

They did not rise nearly as much as US counterparts, leaving the spread between ten year yields at a negative 18 basis points, compared with -4 bps just a week ago - a bearish note for the Aussie.