SYDNEY: The Australian and New Zealand dollars were headed for their biggest gain in ten weeks, buoyed by a broad risk-led rally as the dollar took a breather even as the Federal Reserve remained on track to extend its aggressive tightening campaign.
The Aussie was hovering at $0.6272 on Friday, after surging to as high as $0.6356 overnight before running into resistance and giving back most of its gains.
Support is at Thursday’s $0.6229 low and around $0.6200.
It is heading for a weekly jump of 1.2% as strong corporate earnings lifted shares while Britain’s fiscal U-turn injected confidence into the markets.
Liz Truss also quit on Thursday after the shortest, most chaotic tenure of any British prime minister.
The kiwi dollar was hanging on at $0.5657, having also surged to a two-week high of $0.5742 overnight before bears piled back in.
It is set to finish the week with a jump of 1.7%, riding on bets that the Reserve Bank of New Zealand will continue its aggressive tightening drive to tame runaway inflation.
Traders are also keeping their focus on hawkish comments from Federal Reserve officials and the aggressive rate hike path ahead.
Australia, NZ dollars fall as risk sentiment turns, soft jobs data weigh
Australia is expected to report next week that annual inflation likely accelerated to nearly 7% in the third quarter, up from 6.1%.
The data could pile pressure on the Reserve Bank of Australia to follow their hawkish peers after it surprised markets earlier this month with a smaller-than-expected rate hike.
“We continue to expect global macro forces will have more bearing on AUD than domestic developments. However, market pricing for RBA rate hikes can impact AUD,” said Kim Mundy, a currency strategist at CBA.
“In our view, further evidence that Australia’s labour market is cooling can encourage markets to reduce their pricing for the peak in the Reserve Bank’s cash rate which is near 4.0%.
If we are right about the peak in the cash rate, interest rates will be another force bearing down on AUD/USD.“ The Aussie has dropped 0.5% against the kiwi this week to NZ$1.1069, given the divergence of policy path for the two central banks.
Markets are also watching if China will relax its quarantine rules after the ongoing Communist Party Congress ends.
Bloomberg reported that China is considering cutting the time that inbound visitors have to stay in COVID-19 quarantine, from 10 to seven days.
Australian government bond yields jumped following a move in US Treasures market. Yields on 10-year bonds rose 7 basis points to 4.146%, the highest since January this year.
Yields on three-year bonds gained 6bp to 3.702%.