Australia, NZ dollars suffer more mood swings, lean on support

SYDNEY: The Australian and New Zealand dollars swung lower on Tuesday as market sentiment over the Gulf war see-sawed between hope and disappointment, while domestic economic news was too mixed to offer direction.

The Aussie slipped 0.4% to $0.7139, erasing a 0.3% bounce overnight and threatening major chart support around $0.7019.

Resistance lies at $0.7184 and $0.7272.

The kiwi dollar likewise eased back 0.4% to $0.5854, having rallied 0.7% on Monday. A break of support at $0.5816 would risk a retreat toward recent lows at $0.5681.

The Aussie was undermined in part by a narrowing in its interest rate advantage as yields offshore have spiked by more than at home.

The spread between Australian 10-year debt and US paper has shrunk to the smallest this year at 45 basis points, down from 75 basis points a month ago.

Investors have been pricing in more rate hikes abroad while the Reserve Bank of Australia has already lifted rates three times this year to 4.35% and is seen likely to only move once more to 4.60%.

Minutes of the RBA’s May meeting out Tuesday showed the policy board thought it now had space to pause.

The central bank’s chief economist emphasised the board was aiming to head off any rise in inflation expectations.

“It affirms our expectation that the Board is intending to hold in June to see how the economy responds to three cash rate rises and the impact of the war,” said Ashwin Clarke, a senior economist at CBA.

“Beyond that, we still expect the RBA to remain on hold over the next year, but the risks to the cash rate path are tilted to the upside.”

Spiking energy costs have taken a heavy toll on confidence with a survey of consumers showing only a modest improvement in May following a steep slide in April.

Over in New Zealand, data showed electronic card transactions dived 1.6% in April, with every sector suffering declines.

The Reserve Bank of New Zealand meets next week and markets imply a 30% chance of a hike in the 2.25% cash rate, though that rises to 90% for July.

Investors are also pricing in a whole series of increases over the next year or so that take rates to at least 3.50%.