Australia and New Zealand dollars on the ropes as the RBA enters the ring


SYDNEY, Jan 31 (Reuters) – The Australian and New Zealand dollars were pinned near multi-month lows on Monday ahead of a policy meeting by Australia’s central bank where it is likely to end quantitative easing , but might not seem as hawkish as markets set prices. in.

The Aussie was huddled at $0.7036, after losing 2.5% last week to the lowest since July 2020 at $0.6967. The breakout of the 2021 low of $0.6993 reinforced the bearish technical backdrop and argued for a further retreat to $0.6924 and even up to $0.6758.

The Kiwi Dollar also fell 2.5% last week to $0.6553, depths not seen since October 2020. With support at $0.6590 broken, the next downside target is 0, $6512.

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Both lost ground as markets rushed to assess the risk of an increasingly hawkish outlook for Federal Reserve policy, with nearly five hikes now implied by futures.

Investors expect the Reserve Bank of Australia (RBA) to end its bond-buying campaign at its policy meeting on Tuesday and are betting it could raise rates as soon as May given the rise inflation and low unemployment.

“We don’t expect the RBA to raise the exchange rate until August,” said Kim Mundy, currency strategist at the CBA. “In contrast, we expect the Fed to stop loosening and start to tighten in March.”

“The prior interest rate hike by the Fed is a more important driver for the AUD in our view, and may push it to $0.6823 in the near term.”

An additional risk is that the RBA again rejects the hawkish view of the market and sticks to its stance that a hike is unlikely this year, even if it revises its inflation forecast upwards.

Key will be a speech from RBA Governor Philip Lowe on Wednesday, given he has sounded stubbornly dovish in all of his recent appearances.

The bond market could use some comforting words after three-year yields hit their highest level since mid-2019 last week at 1.315%, before falling back slightly to 1.21%.

Australia also released retail sales figures for December on Tuesday which may show a decline after two very strong months, while New Zealand’s employment figures on Wednesday are expected to show an extremely tight labor market.

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Reporting by Wayne Cole; Editing by Jacqueline Wong

Our standards: The Thomson Reuters Trust Principles.


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