SYDNEY: The Australian and New Zealand dollars held tight ranges ahead of U.S. inflation data on Wednesday as traders tempered expectations Fed rates may have peaked and worries about debt ceiling negotiations in Washington capped confidence.
The Aussie was little changed at $0.6762, having eased 0.3% overnight to as low as $0.6747, as the greenback edged higher amid jitters about U.S. debt ceiling negotiations and share markets taking a turn for the worse.
It faces resistance at a three-week high of $0.6804 touched just two days ago and has support at the 200-day moving average of $0.6727.
Australia, NZ dollars buoyant as greenback retreats on Fed-pausing bets
The kiwi dollar was changing hands at $0.6337, having also slipped 0.2% to as low as $0.6319. Resistance is tipped at $0.6358, while major support lies at $0.6160.
Markets are on tenterhooks for the U.S. inflation data later on Wednesday after a strong payrolls report last week delivered a setback to near-term hopes of Federal Reserve easing. Economists see inflation remaining sticky, forecasting a rise of 0.4% in April for both the headline and core CPI.
Fed funds futures are pricing in the peak for rates while seeing cuts of 60 basis points by the year-end.
“Stronger than expected CPI is very negative for risky assets as it boxes the Fed in, creating a trifecta conflict, between inflation concerns, slowing growth, and the need to address banking sector woes,” said Alan Ruskin, chief international strategist at Deutsche Bank.
“Conversely, softer than expected core CPI, is very positive for risk, and high beta commodity currencies like Aussie, Kiwi and CAD in G10.”
The Australian government on Tuesday announced the first budget surplus in 15 years, allowing it to deliver some cost of living relief to low-income families, a move that markets took in stride.
George Tharenou, chief economist at UBS, said the overall stance of the budget outlook is still stimulatory, adding there is an increasing risk the Reserve Bank of Australia will raise rates again, most likely in July.
“Further out, more definitive is we also now think the RBA is unlikely to cut the cash rate this year,” said Tharenou.
The government is planning to sell around A$75 billion ($51 billion) of Treasury bonds in the year to June 2024, compared with around A$80 billion for the current 2022/23 year.
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