The Australian and New Zealand dollars hit multi-month highs on Monday as details of a concrete aid plan for Greece improved the appetite for risk, though the euro ended up the biggest winner. The Australian dollar initially gained as much as a cent to a five-month high of $0.9389, only for profit-taking against the euro to drag it back to $0.9320 as the day wore on.
The NZ dollar fared likewise, rising to a near three-month high of $0.7195 at one point before fading to $0.7159 late in the day. The euro had been sliding for months, touching a decade low last week as investors borrowed euros to buy the higher yielding Aussie. News the European Union and IMF were prepared to lend up to 40 billion euro to Greece this year sent investors scurrying to unwind some of those short positions.
As a result the euro shot up to A$1.4654, leaving behind last week's decade low of A$1.4343. The local currency was also restrained by comments from Reserve Bank of Australia Assistant Governor Guy Debelle that current interest rates where not far from average, suggesting there may not be many more hikes before the bank pauses.
The central bank hiked rates to 4.25 percent last week, calling it another step toward average. The market is pricing in around a 29 percent chance of another hike in May and is fully priced for 4.5 percent by July. "A little below average would imply that they are not far from an initial pausing point, but not there yet," said David de Garis, a senior economist at NAB.
In any case, he said he suspected it might not be long before the RBA decides it has to take rates further than average. "With domestic demand expected to continue growing above trend, monetary policy in our view will need to move to the contractionary side of neutral," he argued. Which is one reason the market has another 91 basis points of tightening priced in for the next 12 months.
New Zealand's central bank is not seen starting to raise rates until June and then at a more sedate pace. The Aussie stood at NZ$1.3027 on Monday, up slightly on the day but off last week's nine-year peak at NZ$1.3232. Analysts were generally upbeat on the kiwi dollar against the US currency following the Greek deal.
"This news will likely be risk-supportive for the next few days, and so we remain with our up bias for the NZ dollar this week," said Westpac senior strategist Imre Speizer. The kiwi is seen supported at around $0.7125 with sellers likely at $0.7190/00, although a hold above that level is seen opening the way for a move to $0.7250.
New Zealand's data calendar this week will give a snap shot of domestic activity with electronic card retail sales, for March due on Tuesday, and February month retail sales on Wednesday. Expectations are for a flat showing in the more comprehensive retail survey.
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