SYDNEY: The Australian and New Zealand dollars were pinned near recent lows on Monday as yield spreads widened in favour of their US counterpart and speculators eyed breaks of major chart support.

The Aussie was stuck at $0.6422, perilously close to its recent two-year trough of $0.6399.

The next bear target is a low from 2022 at $0.6170.

The kiwi dollar was flat at $0.5639, again not far from a two-year low of $0.5608.

Its 2022 nadir is at $0.5512.

A dovish shift by the Reserve Bank of Australia (RBA) this month led investors to price in a roughly 50-50 chance of a rate cut as early as February.

“The RBA Minutes adopted an explicit easing bias for the first time this cycle, while highlighting weaker-than-expected outcomes across consumption, wages growth and housing-related inflation,” noted Goldman Sachs economist Andrew Boak.

“We continue to expect the RBA to commence a gradual easing cycle in February, conditional on a soft outcome in the trimmed-mean CPI.”

Australia, NZ dollars drift towards two-year lows in holiday-thinned trade

The consumer price index for the fourth quarter is due on Jan. 29 and analysts generally assume it would take an increase of no more than 0.6% in the trimmed mean measure to open the door to a February easing.

That is a challenge given the last time it rose by less than 0.8% was in the middle of 2021.

An early read on inflation will come next week when the monthly CPI for November is released, while data on retail sales and household spending should show the impact of Black Friday on consumption.

Across the Tasman, markets are pricing in a 65% chance the Reserve Bank of New Zealand will cut the 4.25% cash rate by 50 basis points at its February meeting.

The odds of an outsized move narrowed this month when data showed a shockingly sharp contraction in economic growth in both the second and third quarters.

Two-year bond yields are trading a hefty 68 basis points below Treasury yields, a spread not seen since late 2019.