SYDNEY: The Australian and New Zealand dollars were left drifting on Monday as geopolitical concerns over Ukraine offset further gains in global commodity prices as inflation becomes more broad-based.
The Aussie was idling at $0.7130, after bouncing 0.8% last week though it failed to hold the peak of $0.7248 which now acts as major resistance. Support comes in at $0.7100.
The kiwi dollar held at $0.6631, having added 0.6% last week. Again it could sustain its high of $0.6733, leaving the focus on near-term support around $0.6628.
"NZD/USD risks remain skewed to the downside in our view," said Kim Mundy, a currency strategist at CBA. "However, substantial falls are unlikely and we expect $0.6531 will prove a strong support level."
Australia, NZ dollars lifted as bond yields rise
The Aussie was also under pressure given the Reserve Bank of Australia (RBA) was showing little urgency to tighten, while the market was rife with speculation the US Federal Reserve could hike by 50 basis points next month.
"The US labour market is tightening, employment costs are rising rapidly and inflation is very high," warned Mundy. "That will encourage the FOMC to start interest rate lift-off with a 50bp increase in the Funds rate at its March meeting."
"The RBA is unwavering in its determination to remain 'patient' about policy tightening."
Investors are wagering the RBA will have to follow the Fed and act earlier, with futures pricing in a move to 0.25% by June and four more hikes to 1.25% by year-end.
Supporting the Aussie have been steady gains in oil, base metals and gold, though iron ore has taken a hit from efforts by Beijing to curb its rise.
Inflation was also spreading to food as New Zealand reported the biggest increase in prices in five years at 2.7%.
Even after removing seasonal effects, prices were still up 1.1%, while annual growth picked up to the fastest in a decade at 5.9%.
The data added to talk the Reserve Bank of New Zealand (RBNZ) might hike by 50 basis points later this month, though the central bank has said it favours gradual tightening.
NZ swap rates hit their highest since early 2016 last week at 1.54%, while 10-year yields reached levels last seen in November 2018.
Yields on Australian 10-year paper shot as high as 2.213%, before easing back slightly to 2.098%.