SYDNEY: The Australian and New Zealand dollars were looking to push higher on Thursday after US inflation proved no hotter than expected, triggering a wave of liquidation in long US dollar positions which swamped major chart levels.

The Aussie was catching its breath at $0.7284, having raced 1% higher overnight to a two-month top of $0.7293.

It also broke stubborn resistance around $0.7276 which, if sustained, would greatly brighten the technical outlook with a first target of around $0.7342.

Australia, NZ dollars edge higher, still shy of major resistance

"Short of another coronavirus shock, we consider AUD is likely past its weak point in this cycle," said CBA analyst Joseph Capurso. "We expect AUD/USD to end 2022 at $0.8000."

The kiwi dollar was up at $0.6851, after gaining 0.9% overnight to a five-week peak of $0.6859. That just pipped the December high of $0.6857 but bulls need to clear resistance at $0.6867 to keep the rally going.

Both currencies benefited from a sudden retreat in the US dollar as data showed annual inflation at 40-year highs in December but not as stratospheric as many had feared.

Markets now imply around an 80% chance of a Federal Reserve rate rise as early as March, but stuck with wagers for rates to stand at 0.75% to 1.0% by year end.

Futures also imply rates will peak at 1.75-2.0%, which would be very low by historical standards.

The market is pricing in much the same for Australian rates, even though the Reserve Bank of Australia (RBA) has repeatedly stated that a move was unlikely this year.

The Aussie dollar got an added lift from rising commodity prices as the weaker US currency combined with supply disruptions to push copper and nickel to decade peaks, while oil and iron ore extended their recent rise.

That is a boon to Australia as a major resource exporter, boosting company earnings and tax receipts.

The country boasted a trade surplus of A$112 billion ($81.57 billion) in the year to November, a marked contrast to the United States' record deficits.