SYDNEY: The Australian and New Zealand dollars were testing resistance on Tuesday as a sharp fall in Treasury yields weighed on their US counterpart, while New Zealand’s central bank pushed back against bets for early rate cuts.
The Aussie edged up to $0.6617, having gained 0.6% overnight as US yields dropped.
A sustained break of the $0.6621 barrier would open the way to $0.6660.
The kiwi dollar reached $0.6141, after rising 0.7% overnight, and faces resistance at $0.6148.
The currency was aided by comments from the chief economist at the Reserve Bank of New Zealand (RBNZ) that inflation was still far too high, even if tight policy was working to cool prices.
“The tone of the comments were hawkish and seemed to push back on market expectations for any policy easing in the near term,” said Westpac economist Satish Ranchhod.
“Market pricing for easing in the first half of this year still seems premature.” Investors seemed less than convinced, however, and futures imply about a 67% of a first rate cut in May, with a move in July fully priced in.
That aggressive outlook could shift depending on how dovish the Federal Reserve sounds at its policy meeting on Wednesday.
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Over in Australia, data on retail sales showed a steep slide of 2.7% in December, partly as pay back for a Black Friday-inspired jump the month before.
Annual sales slumped to lows usually only seen in recessions or pandemic lockdowns, underlining the pressure on household budgets from high rates and past inflation.
This is one reason markets see virtually no chance the Reserve Bank of Australia (RBA) will hike rates again at its policy meeting next week.
Instead, futures imply around a 56% chance of a first rate cut in June, with July put at a 94% probability.
Markets have around 43 basis points of easing priced in for all of 2024, which is relatively modest compared to the United States and Europe.
Key for the outlook will be figures on consumer prices for the December quarter due on Wednesday, where analysts expect annual inflation to slow to a two-year trough of 4.3%.
Core inflation is also seen cooling, though price pressures in the service sector are proving more stubborn.
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