Australia, New Zealand dollars hit 10-week highs on pared Fed rate risk

SYDNEY: The Australian and New Zealand dollars hit 10-week highs on Monday as fading bets that the Federal Reserve will need to raise interest rates to tame inflation weighed on the US dollar.

The Aussie rose 0.2% to $0.7098, extending a seven-week winning streak.

The rally helped it break major resistance at $0.7089, with bulls now targeting the May top of 72 cents.

The kiwi gained 0.3% to $0.5905, after jumping 0.7% on Friday.

Major resistance now lies at $0.5908, while support is around $0.5850.

A soft run of US data from cooler-than-expected inflation readings and an unexpected decline in retail sales had investors giving up bets for an imminent rate hike, with market pricing for a policy hold from the Fed next month at 71%.

“Much of the Aussie’s upward grind just aligns with its typical role as a high beta play against the greenback, aided by recent record highs in US equities.

The RBA’s ongoing hawkish bias has also helped,“ said Sean Callow, a senior analyst at ITC Markets.

“Assuming a decent jobs report on Thursday, there may be enough time before Jackson Hole (August 27 to 29) for the Aussie to make a run at 0.72.”

Market focus is on the local jobs reports on Thursday where forecasts are centered on a gain of 15,000 jobs for July and a steady unemployment rate at 4.4%.

The Reserve Bank of Australia judged the labour market has eased somewhat, tipping the jobless rate to reach 4.8%.

Markets are split on the chance of another rise in interest rates from the RBA to 4.6% by the year-end, as policymakers turned hawkish after holding interest rates for a second time this year.

Quarterly wages data are due on Wednesday while RBA Deputy Governor Andrew Hauser will also be speaking.

Across the Tasman Sea, the Reserve Bank of New Zealand next meets in early September and markets have long priced in around an 86% chance of a quarter-point rise in the 2.5% cash rate, with 3.0% to be reached by year-end.