Australia, NZ dollars rally on market mood swing, sentiment fickle

SYDNEY: The Australian and New Zealand dollars were back from the brink on Thursday as a sudden mood swing in global markets helped risk assets rally, offsetting an otherwise soft set of domestic economic data.

Dealers cited hopes for a resumption of oil shipments through the Strait of Hormuz and for possible talks between the United States and Iran, though much was still uncertain.

The Aussie was up at $0.7078, having bounced 0.6% overnight and away from a low of $0.6985.

Events in the Middle East have seen the currency dive as deep as $0.6945 to as high as $0.7122 so far this week, and more volatility looks likely.

The kiwi dollar held at $0.5940, after rising 0.9% overnight from a trough of $0.5861.

Major support lies at $0.5837, with resistance at $0.5954 and $0.6012.

“If the US-Israel-Iran conflict proves short lived, then positive AUD fundamentals should quickly reassert,” said Ray Attrill, head of FX Strategy at NAB.

“But any signs that the conflict turns into drawn-out affair leaves AUD vulnerable to the downside,” he cautioned.

“A move above $90 for WTI crude or close to $100 for Brent could be a trigger for a much bigger risk off event.”

At home, data showed Australian household spending rose only a modest 0.3% in January, after a 0.5% drop the month before, suggesting consumer demand had lost some momentum.

That could soothe concerns at the Reserve Bank of Australia that demand was outstripping the economy’s supply potential and necessitated further increases in interest rates.

Figures out on Wednesday showed the economy picked up speed in the December quarter, putting upward pressure on inflation, but that there were also signs of a much-needed improvement in productivity and a cooling in labour costs.

As a result, markets imply only a 20% chance the RBA will hike its 3.85% cash rate at the next board meeting on March 17, but are fully priced for a move to 4.10% in May.

“We still expect the RBA to lift the cash rate in May and stay on hold in March, but a lively debate is expected,” said Belinda Allen, head of Australian economics at CBA.

“Dependent on the duration and severity of the Mid East conflict, the clear risk sits with the RBA having to lean further against inflation.”