Australia, NZ dollars boast second week of bumper gains as greenback buckles

SYDNEY: The Australian and New Zealand dollars were looking to end the week with bumper gains on Friday as the greenback struggled with investor disenchantment, while the potential for rate hikes at home burnished their yield appeal.

An uncomfortably hot reading on Australian inflation has seen markets price in a 70% chance of a quarter-point increase in the 3.6% cash rate next week, and 50 basis points of tightening for the year.

The Reserve Bank of Australia meets on Tuesday and had already warned that rates might need to rise if inflation did not cool as hoped, leaving all four of the major local banks tipping a hike to 3.85%.

“A hike is our base case, but the RBA’s reaction function is the wild card with some uncertainty over the Board’s urgency to hike,” said Belinda Allen, head of Australian economics at CBA, noting it was possible the vote might not be unanimous.

“We expect a hawkish tone, do not expect the statement or the press conference to commit to further tightening,” she added.

“We are still of the view the economy only needs some fine tuning in the form of one rate hike.”

If the RBA does tighten it will join Japan as the only developed-world central banks to be raising rates.

The Federal Reserve is still expected to ease twice more this year.

That outlook helped underpin the Aussie at $0.7050, having touched a fresh three-year peak of $0.7094 overnight.

That brought its gains for the week to 2.4%, and no less than 5.3% for the past two weeks.

The next bull target is a 2023 top at $0.7158, followed by $0.7282 and $0.7661.

Support lies around $0.6970 and $0.6900.

The kiwi dollar stood at $0.6078, near a seven-month high of $0.6092.

It was up 2.2% for the week, and 5.6% in the past two weeks. Major resistance lies at the 2025 top of $0.6120.

Support comes in around $0.5950.

Markets also assume the next move in New Zealand rates will be up, albeit not until July at the earliest.

Data out on Friday showed consumer sentiment surged 6% in January to the highest since mid-2021, continuing a run of better news.

The Reserve Bank of New Zealand meets on February 18 and it will be the first for new Governor Anna Breman to lay out her vision for how policy may develop.