SYDNEY: The Australian and New Zealand dollars held their gains on Monday after getting a lift from soft U.S. inflation figures, but traders are bracing for another tossup decision from the Reserve Bank of Australia.
The Aussie was hanging at $0.6663, having gained 0.7% on Friday to as much as $0.6672 and moving away from a three-week trough. It faces resistance at the 200-day moving average of $0.6736, while having support at $0.6595.
The currency is down 2.4% in the first half of the year.
The kiwi dollar was hovering at $0.6139, after jumping 1.1% on Friday to as high as $0.6142. Resistance is around $0.6165 while support is at $0.6050.
Australia, NZ dollars struggle to lift, eyeing US PCE data
Sentiment had been soothed on Friday by a modest downward surprise in U.S. inflation while a flat reading for consumer spending suggested the Federal Reserve’s rate increases were having an impact, albeit gradually.
The RBA meets on Tuesday and there is no clear consensus among economists on whether the outcome will be another rate rise or a pause. The market is pricing an more than 60% chance the RBA will remain on hold Tuesday.
Chris Reed, Australia economist at Morgan Stanley, expects the bank to raise rates by a quarter-point.
“If the RBA’s base case remains further tightening (which we think it will) then we think it will opt to front-load, given the experience of the April pause, which saw a meaningful easing in financial conditions,” Reed wrote.
Indeed, data showed on Monday a strong rebound in building approvals, improving housing finance and sustained increases in housing prices, suggesting financial conditions might have not been as tight as hoped after an accumulative hike of 400 basis point hike in rates.
Government bond yields moved lower on Monday, tracking the dip in global peers. Three-year yields eased 4 basis points to 3.998%, while 10 years slipped 3 basis points to 3.967%.
That points to an inversion in a key part of the yield curve at -3 basis points, signalling the risk of a recession.
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