Australia, NZ dollars gain as policy confusion dogs greenback

SYDNEY: The Australian and New Zealand dollars were on the rise again on Wednesday as the latest changes in White House policy positions prompted fresh selling of the US dollar from bewildered investors.

The US currency had rallied when US President Donald Trump backed away from threats to fire Federal Reserve Chair Jerome Powell, and hinted that tariffs on China could be a lot less than 145% if Beijing agreed to a trade deal.

But, Trump continued to criticise Powell on interest rates, suggesting the central bank would remain under political pressure. Neither was there any sign Beijing was ready to negotiate.

Australia, NZ dollars off highs, data causes few ripples

“Threats against the sanctity of Fed independence accentuate what now looks like an irreversible momentum shift away from US exceptionalism, and cut to the heart of the USD’s structural challenges - a loss of policy credibility and the breakdown in US governance and institutions,” said Richard Franulovich, head of FX strategy at Westpac.

The resulting see-saw trade saw the Aussie rebound 0.5% to $0.6403, having dropped 0.8% the previous session to as low as $0.6350. Resistance lies at Tuesday’s four-month top of $0.6439.

The kiwi dollar likewise edged up to $0.5974, from an early trough of $0.5934. It faces resistance at the Tuesday top of $0.6029.

The blow to confidence in US assets has left Australian 10-year bonds paying 4.191%, 15 basis points less than Treasuries, compared to 20 basis points more at the start of April.

Markets still implied the Reserve Bank of Australia (RBA) would cut its 4.10% cash rate by a quarter point at a meeting on May 20, but abandoned pricing for an outsized half-point move.

Investors are also certain the Reserve Bank of New Zealand will trim its 3.5% cash rate by 25 basis points at the next meeting on May 28, and ease to around 2.75% by year-end.

There is little in the way of major economic data due until Australian consumer price figures on April 30, when analysts expect core inflation will slip under 3% and offer a green light to a rate cut.