SYDNEY: The Australian and New Zealand dollars were looking to rally on Wednesday as both benefited from a sell-off in the Japanese yen that outweighed concerns about surging coronavirus cases locally.

After a couple of see-saw sessions the Aussie was back at $0.7245, having survived a test of support around $0.7184. It still faces stiff resistance around the recent top of $0.7276, which has defeated several other rallies.

The kiwi dollar firmed to $0.6820, after bouncing from a low of $0.6766 overnight.

Tough resistance now lies at $0.6855/57.

Both were boosted by buying against the yen, which saw the Aussie leap 1.4% overnight to reach a two-month top at 84.17 yen.

The yen has been pressured in part by expectations the Bank of Japan will lag all its peers in tightening policy given the years of disinflation in the country. While markets are wagering on a US rate hike as early as March, they imply no chance of a BOJ move for two years or more.

Futures are almost fully priced for a rate rise from the Reserve Bank of Australia (RBA) by June, even though the central bank has repeatedly said a move was highly unlikely this year.

The huge jump in coronavirus cases locally risked curbing consumer spending and adding to the case for keeping stimulus in place.

Analysts at ANZ said their bank card data showed a sharp drop in spending late in December, particularly in the hard hit state of New South Wales which reported a record 35,000 new cases on Wednesday.

ANZ data also showed a 5.5% fall in job advertisements in December which could reflect some caution by employers given the spread of the virus and its impact on the service sector.

The RBA holds its first policy meeting of the year on Feb. 1 and analysts are divided on whether it will take a small step toward tightening by ending its bond buying programme, or extending it to at least May.