Australia, NZ dollars ride the de-escalation rally, for now
- That prospect was a positive for the Aussie, which is often used by investors as a proxy for risk, and nudged it up 0.1% to $0.7243
SYDNEY: The Australian and New Zealand dollars held near highs on Thursday as an ongoing bull run in global equities and hopes for a de-escalation in the Middle East conflictwhetted investors’ appetite for risk.
A cooling in oil prices also eased the worst fears of future inflation, pulling bond yields lower and somewhat lessening pressure for hikes in interest rates.
“Economic, political, and strategic constraints leave the US strongly incentivised to preserve the ceasefire and seek a negotiated resolution by late May or shortly thereafter,” said Madison Cartwright, a senior geo-economics analyst at CBA.
“There is no military solution available to the US, so de-escalation remains the most attractive pathway.”
That prospect was a positive for the Aussie, which is often used by investors as a proxy for risk, and nudged it up 0.1% to $0.7243.
It climbed 0.7% on Wednesday to hit a four-year top of $0.7277, with the next major barriers being peaks from 2022 at $0.72825 and $0.7593.
The kiwi dollar firmed to $0.5960, after rising 1.1% the previous session to reach a two-month high of $0.5991.
Immediate support lies at $0.5929, with resistance at $0.6012.
The overnight retreat in oil prices also cheered bonds as it lessened the risk of runaway inflation and further increases in rates.
Yields on Australian 10-year notes were back at 4.921% after hitting a top of 5.087% last week.
Markets imply around a 20% chance the Reserve Bank of Australia will hike again in June, having already lifted rates by a total 75 basis points to 4.35% over its last three meetings.
The probability of a move in August sits around 68%, and rates of 4.60% are almost fully priced in for September.
The improvement in global risk sentiment helped offset March data showingAustralia’s first goods trade deficit since 2017 as a boom in data centres sucked in imports of processing equipment.
Fuel imports also surged as the Gulf conflict lifted prices and the Australian government scrambled to secure extra shipments of petrol and diesel to meet demand.
The swing to a deficit implies net exports will drag on economic growth in the quarter, though that will be balanced in part by a rise in business investment as data centres get built.
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