SYDNEY: The Australian and New Zealand dollars were looking to break a five-week losing streak on Friday as hopes that Omicron outbreaks will prove to be manageable prompted profit-taking on crowded short positions.
The Aussie steadied at $0.7145, having rallied 2.1% for the week so far and away from a 13-month trough of $0.6994 marked a week ago. Stiff resistance lies around $0.7187, with more at $0.7208 and $0.7275.
The kiwi lagged at $0.6798, having bounced a smaller 0.8%, leaving it uncomfortably close to a low of $0.6737 marked on Tuesday. It faces resistance at $0.6823 and $0.6867.
Dealers cautioned much of the rally was due to positioning as speculators had got very short during the steep downtrend of the last few weeks and were bound to book profits at some stage.
The market's optimism on Omicron could also change quickly. Investors were focusing on low hospitalisation rates as reason to believe the variant would not derail global growth, but new restrictions in Europe underlined the potential threat.
Australia and New Zealand have resisted pressure for a return to restrictions, looking to safe guard their economic recoveries.
Data from New Zealand on Friday showed spending on electronic cards surged 9.6% in November, suggesting consumption will drive a strong economic rebound this quarter.
GDP figures for the third quarter due next week are expected to show a sharp contraction due to lockdowns, with forecasts ranging widely from a drop of 3% to as much as 7% from the previous quarter.
That is very much in the rear view mirror for policy makers, with the Reserve Bank of New Zealand having already hiked rates by 50 basis points to 0.75% and signalled more to come.
The market has priced in quarter-point rises for each of its meetings in February, April and May and rates above 2% by the end of 2022.
"When it comes to interest rate differentials, the RBNZ is well ahead and that should point to a stronger Kiwi dollar," said Jarrod Kerr, chief economist at Kiwibank.
The country's terms of trade were also at record highs thanks to booming prices for dairy, its biggest export.
Combined that could see the kiwi rise to $0.7300 next year, said Kerr, though he noted the usual correlations had broken down in recent months.
"Predicting the volatile Kiwi currency is fraught with danger," he cautioned. "We expect to see a wide range in the Kiwi between a low of around 63c and a high of as much as 75c."
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