SYDNEY: The Australian and New Zealand dollars found themselves on firmer ground on Thursday as dovish comments from the world’s most powerful central banker pulled down Treasury yields and put the squeeze on short positions.
Both currencies had been under pressure until Federal Reserve Chair Jerome Powell reassured markets that U.S. rates would still likely fall this year, quashing talk that a recent blip in inflation might derail an easing.
The comments dragged down U.S. yields and the dollar and triggered a wave of stop-loss buying in the Aussie when resistance at $0.6535 cracked.
That left the Aussie at $0.6571, having rallied .9% in the New York session. The bounce rescued it from a three-week low of $0.6477 and set up a possible tilt at resistance around $0.6595.
The kiwi followed suit to $0.6133, having jumped 0.7% overnight and away from a low of $0.6070. Resistance now lies around $0.6176.
Australian dollar struggles as economy comes to a standstill
The rally was timely for the Aussie which had been struggling on Wednesday after data showed the Australian economy hardly grew in the December quarter, underlining the case for eventual rate cuts.
Markets imply around an 88% chance the Reserve Bank of Australia (RBA) will cut its 4.35% in August and has 45 basis points of easing priced in for 2024.
“The consumer has been a lot weaker than the RBA anticipated,” noted Gareth Aird, head of Australian economics at CBA.
“On a per capita basis, real consumer spending is down by a very large 2.4% over the year,” he added. “Such an outcome would normally be associated with a large negative shock or recession.”
He sees a first rate cut in September and 75 basis points of easing for this year, and a matching amount in the first half of 2025 taking rates to 2.85%.
The impact of current rates on housing was driven home by data out Thursday showing owner-occupier home loans fell 3.9% in January when analysts had looked for a rise of 2.0%.
Lending for home construction also fell sharply, echoing drops in building approvals and pointing to further weakness in residential investment in coming months.