Australia and New Zealand dollars drop as stocks fall

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SYDNEY, Jan 21 (Reuters) – The Australian and New Zealand dollars lost ground on Friday as a slide in global stock markets undermined risk assets but gave bonds a break after recent selling.

The Aussie fell to $0.7184, after hitting $0.7275 on Thursday, and was down 0.5% on the week. Support lies at $0.7170 while resistance lies at $0.7277 and $0.7314.

Yields on Australian 10-year bonds also fell to 1.898%, after a three-month high of 2.01% hit on Wednesday.

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The Kiwi Dollar fell further behind at $0.6724, in part because the Aussie was up 0.9% for the week on the Kiwi at NZ$1.0687 and near a six-month high.

Stock markets appear to have grown increasingly spooked that the US Federal Reserve will take an even more hawkish outlook at its policy meeting next week given stubborn inflation.

Speculation is also mounting that the Reserve Bank of Australia (RBA) will have to reverse its very dovish stance on rates as unemployment plunged to 4.2% a full year earlier than expected. Read more

Consumer price data due next week could well force a hawkish turn if it shows core inflation rising as far as some fear. The National Australia Bank and the Commonwealth Bank of Australia both forecast reduced average inflation to hit 2.5% in the December quarter, the highest since 2009 and in the middle of the target range of 2% to 3% of the RBA.

The RBA’s board meets on February 1 and analysts assume it will at least end its quantitative easing (QE) program where it buys A$4 billion of government bonds every week .

“The stage looks set for a sharp exit from QE in February,” said Nomura analyst Andrew Ticehurst.

“We continue to anticipate an initial 15 basis point rate hike from the RBA in November, with the risk around that still biased towards an earlier move, like in August.”

The markets are already betting on an increase to 0.25% as early as May or June, and three other increases to 1.0% by the end of the year.

“We believe this will ultimately prove too aggressive, but perhaps understandable in the short term, given the hawkish Fed, continued upside surprises in global inflation, and aggressive rate hikes in other markets.” , added Ticehurst.

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Editing by Christian Schmollinger

Our standards: The Thomson Reuters Trust Principles.

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