Australia, NZ dollars tread water; eyes on Fed chief Powell's testimony

[SYDNEY] The Australian and New Zealand dollars held steady on Monday as investors looked ahead to the first House testimony by the new head of the Federal Reserve for hints on the future pace of policy tightening in the United States.

The Australian dollar stood at US$0.7867, up 0.3 per cent from Friday and well above a recent 1-1/2-month trough of US$0.7756 where crucial chart support lies.

The New Zealand dollar was fetching US$0.7318, within striking distance of a recent two-week low of US$0.7271.

The antipodean currencies have experienced wild gyrations this month as a bond rout cascaded through financial markets and hit risk appetite.

The Aussie is already down 2.6 per cent so far this month, its worst performance since November 2016. The kiwi has done relatively better but is still set to end February in the red.

Last week was particularly trying for Aussie bulls when minutes from the Fed's January policy meeting offered a relatively upbeat tone on the economy in a boost to the US dollar.

The focus still remains on the Fed, with Chairman Jerome Powell's congressional testimony on monetary policy and the economy on Tuesday.

The market is pricing in three rate hikes by the Fed this year while some participants even expect four.

"The US dollar...has certainly stopped being weak over the past six sessions," said Greg McKenna, chief market strategist at AxiTrader.

"It's still not out of the woods, but my sense is the worm is turning (as) the Fed stands so resolute in its plans to tighten 3 to 4 times this year and the economy appears to support that."

On the other hand, the Reserve Bank of Australia (RBA) has reiterated that interest rates in the country were set to remain at record lows for a long time.

The policy outlook is similar in New Zealand, where the central bank has indicated a first move might not come until mid-2019.

In New Zealand, a closely-watched business confidence survey and migration figures for January are due out Wednesday, while fourth-quarter terms of trade data are released on Thursday.

Elsewhere, the euro slipped for a third straight session against the Australian dollar as market participants turned cautious ahead of the Italian general election on March 4.

New Zealand government bonds gained, sending yields 5 basis points lower at the long end of the curve.

Australian government bond futures rose, with the three-year bond contract up 3.5 ticks at 97.935. The 10-year contract climbed 7.5 ticks to 97.2400.

REUTERS