Australian, New Zealand dollars rally anew, lifted by yen flows

THE Australian dollar was having another tilt at the upside on Tuesday as risk sentiment improved globally, while its New Zealand cousin reached a 10-week high helped by strong carry demand against the Japanese yen.

The Aussie pushed to US$0.6668, having risen 0.4 per cent overnight and away from last week’s low of US$0.6592. Major resistance now lies at this month’s peak of US$0.6714.

The kiwi dollar reached US$0.6159, just pipping the prior May high of US$0.6152. The next bull target is a double top at US$0.6218, with support around US$0.6120.

Both extended their recent gains on the yen as the kiwi touched a fresh 17-year peak of 96.65 yen, having climbed 3.8 per cent so far this month.

The local currencies have benefited from hawkish outlooks from their central banks which has forced investors to push out the likely timing of rate cuts.

Markets imply around a 50-50 chance of a single easing from the Reserve Bank of New Zealand by November, and now favour April for a first move.

The central bank underlined its restrictive stance on Tuesday by imposing extra limits on home borrowing.

The outlook is much the same for the Reserve Bank of Australia (RBA) where a quarter-point cut is not fully priced in until May next year.

Another soft reading on retail sales out on Tuesday did little to shift the steady policy outlook given service-sector inflation has surprised on the high side despite more than a year of weakness in consumption.

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“Today’s data will keep the RBA confident they are making progress reducing excess demand,” said Taylor Nugent, a senior economist at NAB.

“We see improved household real income growth in the second half of the year with wages growth outpacing slower inflation and support from income tax cuts.”

Figures on monthly consumer prices are due on Wednesday and would likely need to be well under forecasts of 3.4 per cent to revive the chance of earlier rate cuts. AFP