SYDNEY: The Australian and New Zealand dollars paused to digest a month’s worth of hefty gains on Wednesday as markets waited to see if Russian talk of de-escalating its military operation in Ukraine actually bore fruit.
The news did give a lift to risk sentiment, but also put downward pressure on energy prices, making it a double-edged sword for the resource-heavy currencies.
For now, investors were content to bank the Aussie’s recent gains which have seen it reach five-month highs on the US dollar, a five-year peak on the euro and a seven-year peak on the yen.
The Aussie was steady at $0.7510, after topping out at $0.7540 earlier in the week and just short of is high from last October at $0.7555.
Support comes in at $0.7450.
The kiwi dollar edged up to $0.6950, having bounced from support around $0.6876 overnight. Resistance lies at the recent top of $0.6988 and the major $0.7000 barrier.
Both were aided by flows from the yen as the Bank of Japan (BOJ) intervened aggressively in bond markets to keep yields down near zero.
Australia, NZ dollars bridge yield gulf to reach 7-year peaks on yen
Australian 10-year yields have risen 66 basis points this month to reach 2.826%.
That tempting yield advantage has seen the Aussie climb over 10% so far this month to 92.24 yen, while the kiwi is up 9.1% at 84.99.
Local data was supportive for the kiwi, with new home building consents in New Zealand jumping 10.5% in February to more than reverse a surprise drop in January.
A survey of business sentiment for March also showed some improvement after a dire result the month before, though firms complained of labour shortages and rising costs.
Australia’s annual budget came and went with little market fanfare as its deficit and economic projections were well within expectations. However, the budget did include a lot of extra spending and tax cuts front-loaded to this year and next, likely with an eye to elections due by May.
“This adds to demand at a time when the economy is already strong,” noted Hayden Dimes, a markets economist at ANZ. “When the RBA starts to hike, we expect it to move with some vigour and the cash rate to reach 2% by the end of 2023.”
Markets already imply rates will reach 2.0% by the start of 2023, with no less than seven hikes priced in for this year.