SYDNEY: The Australian and New Zealand dollars held onto overnight gains on Thursday as the world’s most watched central banker reassured markets that the next move in rates is still likely to be down, not up after a slew of inflation surprises, while bonds rallied.
The Aussie held at $0.6529, having jumped 0.8% overnight to as high as $0.6540. It managed to climb back above the 200-day moving average of $0.6522, resuming its recent upward momentum.
The kiwi was flat at $0.5926, after gaining 0.7% overnight to as high as $0.5940. It, however, still faces resistance at the 20-day moving average of $0.5944.
Overnight, the US Federal Reserve kept interest rates steady as widely expected, but Governor Jerome Powell said it is unlikely that the next policy move would be a rate hike, preaching patience and disappointing those who have looked for a hawkish turn after three hot inflation prints.
The US dollar was pressured, but its retreat was exacerbated by a surge in the yen on suspected intervention from Japanese authorities.
The index fell 0.6% against its major peers overnight. Much of the yen moves reversed on Thursday, with the Australian dollar up 1% to 101.7 yen, reversing most of the 1.4% drop overnight.
The kiwi also rebounded 0.8% to 92.35 yen, after plunging 1.4% overnight. Bonds tracked Treasuries higher.
Australia, NZ dollars find support after slide
Three-year Australian government bond yield fell 5 basis points to 4.072% while ten-year yield also dropped 5 bps to 4.460%.
On Thursday, data showed Australia’s surplus on trade goods narrowed to a more than three-year low in March, suggesting net exports would be a big drag on economic growth in the first quarter.
Building approvals rose 1.9% in March, missing expectations, a sign that the supply shortage in the housing market that has driven up property values is not getting any better.
Coming up is the Reserve Bank of Australia’s rate decision on Tuesday where policymakers are facing a similar dilemma of a re-acceleration in inflation.
Analysts are expecting a hawkish shift from the policy statement and Governor Michele Bullock.
Benjamin Picton, a senior macro strategist at Rabobank, expects the RBA will have to raise rates in August and November to a terminal rate of 4.85%.
“There are clear risks inherent in the RBA’s gentle approach to the inflation fight … Ebullient asset markets and accelerating credit growth are indications that monetary conditions are not sufficiently tight.”