Australia, NZ dollars probe resistance, inflation tops forecasts

[SYDNEY] The Australian and New Zealand dollars were again challenging chart resistance on Wednesday as their US counterpart waned and domestic data extended their recent habit of surprising on the upside.

The Aussie firmed to US$0.7740, having bounced from strong support in the US$0.7660/70 area overnight. It still faces resistance layered from US$0.7785 to US$0.7805 and US$0.782.

The kiwi dollar had rallied to US$0.723 and away from support at US$0.717. Resistance lies at US$0.7240/50 and the recent peak of US$0.7314.

"It needs to clear US$0.724 to signal the upward trend is continuing, with US$0.7325 an initial multi-week target," said Westpac's head of NZ market strategy, Imre Speizer.

"We retain a bullish medium-term outlook for NZD/USD, targeting 0.7500 by April," Mr Speizer said. "The main drivers are expected to be elevated global risk sentiment and an outperforming NZ economy."

The US dollar was hampered by expectations the Federal Reserve would stick with its ultra-easy policy at a meeting later on Wednesday and play down the need for tightening anytime soon.

At home, Australian consumer price data surprised to the upside with a rise of 0.9 per cent in the December quarter, though much of that was due to government taxes and subsidies rather than demand-driven costs.

Underlying inflation rose just 0.4 per cent in the quarter to keep the annual rate at a record low of 1.2 per cent, still well short of the Reserve Bank of Australia's (RBA) target band of 2-3 per cent.

The central bank holds its first policy meeting of the year next week and CBA senior economist Kristina Clifton expects it will again forecast that core inflation will remain below its target, at least until mid-2022.

"Such a profile will support an extension of their bond buying programme," she added. "We expect the RBA to commit to buying a further A$100 billion (S$103 billion) of government bonds when the current programme expires (in April)."

"We expect that to be announced either at the March or April Board meeting, not at the February meeting next week," she said.

Were the RBA to taper its buying longer-term yields would likely rise sharply and push the Aussie yet higher.

So far, 10-year yields have moved up to 1.05 per cent in line with US yields to keep the spread around zero, but that would change should the RBA show any hint of reconsidering the programme.

REUTERS