Australia, NZ dollars hold onto relief rally gains, war risks loom
- The Aussie was off a shade at $0.7075, having risen 0.6% overnight to a three-week top of $0.70945
SYDNEY: The Australian and New Zealand dollars were holding onto hefty gains for the week on Friday as investors hoped the worst outcomes had been avoided in the Middle East, though weekend peace talks still offered plenty of event risk.
The Aussie was off a shade at $0.7075, having risen 0.6% overnight to a three-week top of $0.70945.
That brought gains for the week to a hefty 2.8% and continued the wild swings seen the Iran conflict started.
The rally took it well away from the recent trough of $0.6834, but resistance remains at $0.71235 and $0.71875.
The kiwi dollar edged down to $0.5850, after gaining 0.6% overnight to as far as $0.5873.
The rebound left the kiwi up 3.0% for the week, rescuing it from a four-month low of $0.5681.
Resistance lies at $0.5891 and $0.5964.
Both were aided by buying against the Japanese yen, which has lifted the Aussie 2.4% for the week to 112.73.
Australia is a net energy exporter and has a buffer against rising prices, while Japan is a major importer of oil and gas.
The Aussie also has a sizeable yield advantage given the Reserve Bank of Australia has lifted cash rates by 50 basis points to 4.10% this year, and might well hike again in May given inflation had been too high before the spike in energy.
Luci Ellis, chief economist at Westpac, noted there were signs that higher costs were already being passed through by producers, and on a range of goods from food to cement.
“The cost of building a detached home has increased as much as 10%, on our preliminary estimates,” she said.
“The lift in pricing has been widespread across industries and in some cases quite large relative to overall inflation trends.” “If the ceasefire does hold, downside risks to growth diminish and inflation risks ease,” she added.
“But because of the downstream pass-through to other prices the RBA is still likely to raise the cash rate further.”
The Reserve Bank of New Zealand this week warned of much the same threats, with some policy makers favouring a pre-emptive rise in the 2.25% cash rate to head off inflationary pressure.
As a result, markets are pricing in a 65% chance the RBA will hike in May, and an 88% probability the RBNZ will move to 2.5% in July.
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