SYDNEY: The Australian and New Zealand dollars kept their rally against the U.S. dollar alive on Thursday, helped by a U.S. inflation report that contained few surprises and reinforced bets that U.S. rates have peaked and cuts are on the cards this year.
The Aussie rose 0.1% to $0.6785, after briefly touching a 2-1/2 month high of $0.6818 overnight before giving back some of the gains. It now faces resistance at April’s peak of $0.6808, and has support at the 200-day moving average of $0.6726.
The kiwi dollar edged up 0.1% at $0.6375, having risen 0.5% to as far as $0.6380 overnight, the highest since early April. Resistance is tipped at $0.6383, while major support lies at $0.6160.
Weighing the sentiment a little were disappointing China inflation figures for April. Consumer prices in China, a major trading partner for the Antipodeans, rose at the slowest pace since February 2021, while factory gate deflation deepened, pointing to a sluggish economic recovery after the lockdowns.
Data showed on Wednesday the annual increase in U.S. consumer prices dipped below 5% in April for the first time in two years. An inflation measure closely watched by the Federal Reserve also subsided, which could provide incentive for the central bank to pause further interest rate hikes next month.
Markets cheered that inflation was heading in the right direction, albeit at a slow pace. Fed funds futures priced in an almost certain chance that the Federal Reserve would pause at the next policy meeting in June, as well as about 75 basis points in cuts by the end of the year.
However, economists still believe the overall strength in inflation and the labour market could keep the prospects of a hike next month alive and rates staying higher for longer.
“U.S. CPI may not have come in materially different from expectations but the absence of any upside surprises sufficed to generate a relief rally in the bond and U.S. money market, higher stocks and a weaker U.S. dollar,” said Ray Atrill, head of FX strategy at NAB.
“But as with the USD, knee-jerk moves have failed to be sustained and AUD is back below 0.68.”
Analysts at HSBC on Thursday revised lower their year-end forecast for the Aussie dollar to 72 cents, reflecting a subdued outlook for China’s demand for Australia’s exports and weak ability to benefit from global growth via the commodity channel.
The U.S. will report initial jobless claims and producer price data on Thursday, which could reinforce recent signs of a softening labour market and cooling inflationary pressures from wages.
Local bonds joined a global rally. Three-year Australian yields fell 7 basis points to 3.077%, while the ten-years eased 5 basis points to 3.407%.