The Australian and New Zealand dollars marked time on Wednesday as investors counted down the hours to a likely rise in US interest rates and guidance on how many more may come this year. The Australian dollar was up a slim 0.1 percent at $0.7571, still cornered within the snug $0.7534/0.7592 range that has held so far this week. The kiwi likewise edged up 0.2 percent to $0.6935, but remains close to a recent two-month trough of $0.6890.
Markets have already fully priced in a quarter point hike by the Federal Reserve when it policy meeting ends later Wednesday and are more wary of what policymakers will project in their dot plot forecasts for future rates. Also looming for currency markets was an election in the Netherlands where a strong showing by the anti-EU PVV party would likely undermine the euro.
The risk was enough to drag the single currency down to A$1.4021 and away from a recent five-week peak $1.4180. In the bond market, yields on New Zealand government debt were a fraction higher. Australian government bond futures were unchanged, with the three-year bond contract at 97.860. The 10-year contract was stuck at 97.0275. Fed members had previously tipped three hikes for this year and any move upward in that would tend to support the US dollar at the expense of the Aussie and kiwi.
In contrast, both the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ) have indicated they could leave rates unchanged for all this year. "The Fed's assertive tightening bias plus US fiscal expansion should maintain upside pressure on interest rates and the dollar," say analysts at Westpac, while predicting a drop in the Aussie to $0.7400 on a three-month horizon.