SYDNEY: The Australian and New Zealand dollars pulled back from overnight highs on Thursday, as hawkish comments from the US Federal Reserve Chair shattered the risk-on rally after the central bank’s fourth outsized hike.

The Aussie was hovering at $0.6356, after a volatile session that saw it first surging to as high as $0.6490 and wiping out all of the gains to end 0.7% lower.

It had support around $0.6212.

The kiwi dollar was hanging at $0.5803, after pulling away from a six-week top of $0.5942 touched overnight. Support lies around $0.5776.

Investors were initially cheered that the Fed opened the door to a slowdown in the pace of hikes after raising interest rates 75 basis points to 3.75-4.0% on Wednesday, by noting that policy acted with a lag.

But Chair Jerome Powell soured the mood by saying it was “very premature” to think about pausing and that the peak for rates would likely be higher than previously expected.

Futures nudged up the peak for rates to 5.0-5.25% likely by May next year, while implying little chance of a rate cut until December 2023. “This warrants higher rates, both in nominal and real terms.

However, financial stresses and the lagged impact of monetary policy support a slower, therefore safer, path of rate hikes going forward, in our view,“ said Eugene Leow, senior rates strategist at Deutsche Bank. “Going forward, we are watching for signs of exhaustion in USD strength even as the Fed stays hawkish.”

NZ dollar underpinned by strong jobs data, A$ idles

The yields on 10-year Australian government bonds rose 9 bps to 3.891%, remaining a hefty 22 basis points under Treasury yields, reflecting wagers that US rates will peak above those in Australia.

Data showed on Wednesday that Australia’s exports jumped 7.0% led by big gains in iron ore and liquefied natural gas, while imports edged up only 0.4% as consumption goods fell back after a strong August.

Robert Carnell, Asia-Pacific regional head of research at ING, expected the bigger-than-expected exports, coupled with weaker imports, could help put a floor under the Aussie dollar after the impact of the Fed’s move.