SYDNEY: The Australian and New Zealand dollars scrambled from lows on Friday as a sharp rally on Wall Street rescued risk sentiment, though both look vulnerable as their domestic economies continue to soften.
There was a sigh of relief from Aussie bulls as the currency clambered back to $0.6579, having hit an 11-week trough of $0.6508 overnight when support at $0.6525 cracked.
The kiwi dollar also steadied at $0.6147, after sinking as deep as $0.6081 overnight, though it managed to dodge a damaging breach of support at $0.6062.
Both had been pressured on Thursday by market concerns about fresh contagion in the U.S. banking sector, but that was offset by upbeat results from two tech giants that sparked a late surge in stocks.
A recent run of subdued economic data at home remained a drag as markets brought forward the expected timing of rate cuts.
The Reserve Bank of Australia (RBA) holds its first policy meeting of the year on Feb. 6 and is considered certain to keep rates at 4.35% given inflation has surprised to the downside.
Australian dollar slips, bonds rally as inflation rate takes a dive
Adam Boyton, head of Australian economics at ANZ, also thinks the RBA will keep its implicit tightening bias in the post-meeting statement, at least for now.
“This will reflect the RBA wanting to be very confident that inflation is coming back to the band in a sustainable fashion before changing its rhetoric,” Boyton said.
“As for our own views on the RBA, risks are starting to tilt toward an earlier start to the easing cycle - although we aren’t moving off our November call just yet.”
Markets are far more dovish, pricing in around a 65% chance the RBA could cut rates as soon as May and almost 63 basis points of easing for all of 2024.
Analysts also assume the RBA will cut its inflation forecasts for this year, while projecting core inflation at 2.5% by mid-2026 and thus in the middle of its 2% to 3% target band.
The policy outcome will be released under a new format which will see governor Michele Bullock give a media conference at 0430 GMT to expand on the reasons for the decision.
The Reserve Bank of New Zealand (RBNZ) does not meet until Feb. 28 and is again considered certain to hold rates at 5.5%, though there might be some softening in its very hawkish rhetoric given weakness in inflation and employment.