Australia, NZ dollars stuck in a rut, strong data no help

SYDNEY: The Australian and New Zealand dollars were locked within tight ranges on Wednesday as upbeat domestic data and strength in global commodity prices failed to break the forex market's recent lethargy.

News that the state of Victoria had extended its coronavirus lockdown for another seven days also overshadowed the better data and came as a blow to the Aussie.

The Aussie was stuck at $0.7765, still comfortably above last week's trough of $0.7677. But it again shied away from stiff resistance at $0.7796 and $0.7813, barriers which have held for the past three weeks. Traders said large option positions seemed to be boxing it in as investors wagered on more sideways drift.

The kiwi was idling at $0.7260, above support at $0.7215/7230 but short of resistance at $0.7290. It needs to clear the recent three-month peak of $0.7316 to gain momentum.

Australian figures showed the economy expanded by a healthy 1.8% in the first quarter, taking gross domestic product (GDP) back above pre-pandemic levels. It also sets up the current quarter for annual growth of 10% or more.

That will be welcome by the Reserve Bank of Australia (RBA) but was already built into its forecasts on Tuesday when it reiterated that no rate hike was likely until at least 2024.

"As shown by the lockdown in Victoria, there is still some way to go to claim victory," said Craig James, chief economist at CommSec. "Stimulus must remain in place until it is clear that a sustainable recovery has been achieved," he added. "Measures to suppress the virus need to be reinforced and vaccination rates need to accelerate."

The RBA's steady outlook kept yields on 10-year bonds at 1.65%, well within the 1.579% to 1.767% band of the past couple of months. The spread over US Treasuries is at a meagre 3 basis points and has been a drag for the Aussie.

Analysts did note that the RBA policy statement omitted a line that it was "prepared to undertake further bond purchases", suggesting some risk it would not extend bond buying at the next policy meeting in July.

"It is clearly are more hawkish sign as we head into the July meeting," said Damien McColough, head of rates strategy at Westpac.

"Perhaps the market is already prepared for a taper, however we think that would inevitably lead to a steeper curve and a wider Au-US 10-year spread."