Australia, NZ dollars supported as markets pare Fed rate risk

SYDNEY: The Australian and New Zealand dollars consolidated near multi-week highs on Thursday as the fading risk of a near-term US rate hike weighed on the greenback, while supporting bonds in the face of rising oil prices.

Markets have priced out almost any chance of a move from the US Federal Reserve this month, while remaining confident kiwi interest rates will rise at least two more times this year with a real chance of one more Aussie hike.

The dovish turn on US rates also benefited risk sentiment generally, though continued hostilities in the Gulf made for an uncertain geopolitical outlook.

All of which left the Aussie a shade easier at $0.6998 , having risen almost 0.5% overnight to a three-week top of $0.7021.

The next chart barrier is $0.7071, with support at $0.6913 and $0.6867.

It was aided by a sharp rally on the yen which took it to a six-week peak at 113.39, a rise of 1.0% for the week so far.

“A weaker US dollar and the repricing of Fed expectations have supported the cyclical growth narrative, while a resilient commodity backdrop has helped AUD/USD push back towards the psychologically important $0.7000 level,” said Chris Weston, head of research at Pepperstone.

“With the Fed appearing firmly on hold, and pockets of renewed buying across commodity markets, pro-cyclical FX is finding some form.”

The kiwi dollar was flat at $0.5845, after climbing 0.7% overnight to a one-month high of $0.5863. Resistance lies at $0.5865, with $0.5993 the major target and support at $0.5774.

Markets still imply around a 70% chance the Reserve Bank of New Zealand will raise its 2.5% cash rate when it next meets in September, and are fully priced for 3.0% by year-end.

Key 2-year swap rates hit a two-month top of 3.6998% early in the week, before a rally in Treasuries saw them ease back a bit to 3.5825%.

Australian 10-year bond yields had likewise eased to 4.893% , from a recent peak of 4.933%.