SYDNEY: The Australian and New Zealand dollars drifted higher on Tuesday ahead of a key US inflation report in the first hurdle of a week that will test market hopes of early and aggressive central bank easing next year.
Tuesday also marked the 40th anniversary of the float of the Australian dollar, which has served as great safety valve for the economy, falling when things are tough and surging in the boom times to help restrain inflation.
The currency started around $0.9000 and has averaged $0.7550 since 1983. It used to be used by global investors as a very useful liquid proxy for commodities, and now for exposure to China, Australia’s largest trading partner.
On Tuesday, the Aussie edged 0.3% higher to $0.6588, having traded between $0.6550 and $0.6582 on Monday. It has support at a two-week low of $0.6525, while resistance is at $0.6620.
The kiwi was 0.4% higher at $0.6146, having been flat overnight.
They likely drew some support from better risk sentiment in Asia as Chinese property shares rebounded and iron ore prices ticked high, but focus will be on the US data later in the day (1330 GMT) and whether is shows inflation is cooling further.
“You can imagine the markets waiting at the start line for the final sprint of the year. There are 110 metres to cover and 10 hurdles ahead, and no one wants to jump the gun,” said Kyle Rodda, senior financial market analyst at Capital.com.
Down Under, data showed that Australian consumer sentiment had the second worst year on record in 2023 as costs of living and high interest rates bit.
Business activity also slowed in November and their mood also darkened.
Michele Bullock, during the Q&A session at a speech about the payments system, said policymakers were taking a cautious approach with policy and would continue to watch incoming data.
The central bank left interest rates unchanged at 4.35% last week.
Markets suspect the RBA is now done tightening, although they only priced in a quarter point rate cut by the year end, reflecting a slower return of inflation to target in the country, compared with other major economies.
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