Australian, New Zealand dollars remain weak

The Australian and New Zealand dollars were pinned near key support levels on Tuesday as local economic news disappointed and markets reconsidered the need for drastic policy easing in the United States. The Aussie dollar had edged down to $0.6957 and threatened a bearish break of a chart bulwark at $0.6956. The kiwi stood at $0.6626 and a long way from its recent top at $0.6737. It now has chart support in the $0.6590/0.6603 area.
Both currencies have lost ground to their US counterpart since Friday's upbeat US jobs report quieted calls for a sharp rate cut from the Federal Reserve this month. Futures currently imply less than a 3% chance of a 50-basis-point easing, compared with 25% ahead of the data. A cut of 25 basis points is still fully priced in, leaving the market vulnerable should Fed Chair Jerome Powell not sound dovish in testimony on Wednesday.
"If the Fed were to actively talk down July cut expectations, this would be the obvious time," said analysts at RBC Capital Markets in a note. "But having passed up on opportunities to even hint that way in recent weeks, that seems less likely to happen." "Our best guess is that his testimony will highlight all the positives of the US economy and when asked about cuts, Powell will repeat lines on using all available tools to extend the recovery."
Data for Australia were not so positive, with a survey of business showing lacklustre conditions in June despite a cut in interest rates early in the month. National Australia Bank's index of business conditions rose 2 points to a still modest +3, while confidence retraced its May gains and fell 5 points to +2. The subdued outcome illustrated why the Reserve Bank of Australia (RBA) felt moved to cut rates in June and July, leaving them at a record low of 1%, and why markets are wagering on at least one more easing to 0.75%.
Futures imply an 84% chance of a cut by December, with much depending on whether unemployment turns lower as the RBA hopes. Yields on three-year bonds remain below the cash rate at 1.96%, though up from the recent historic trough at 0.884%. The 10-year bond future eased 1 tick to 98.6600, just off the recent all-time peak of 98.7350.