Australian, New Zealand dollars struggle to extend rally ahead of US CPI data

THE Australian and New Zealand dollars struggled to extend a rally on Monday, after outperforming their peers in the previous session, with traders wary ahead of key US inflation data.

The Aussie was off 0.2 per cent at US$0.6832, after surging 1.4 per cent to as high as US$0.6877 in the previous session as speculators took profit on short positions.

Near-term support is at its July trough of US$0.66825. The kiwi dollar was mostly unchanged at US$0.6108, having also climbed 0.9 per cent on Friday. It has support at its recent 27-month low of US$0.5997.

Tuesday’s reading on US consumer prices is likely to show a peak for inflation. Economists polled by Reuters expect the annual CPI to have eased to 8.1 per cent in August, compared with 8.5 per cent in July.

A softer US inflation reading would likely weigh on the greenback, underpinning risk-sensitive assets such as the Australian dollar.

“There is a clear focus on US CPI – that is the marquee event risk this week, and while the momentum favours long equity, short USD for a tactical short-term trade, a hot CPI number will hurt,” said Chris Weston, head of research at Pepperstone.

“Psychologically, a number below 8 per cent could offer relief for risky assets, even if core inflation should increase a touch to 6.1 per cent.”

Besides facing the hawkish stance from global central banks to curb inflation, the Aussie has also been undermined by economic worries in China and Europe, with some analysts expecting it could test this year’s low of US$0.6682 on more negative news about the global outlook.

On Monday, Australian government bond futures were steady, with the yield on the ten-year contract hovering around 3.585 per cent.

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The spread over US Treasuries remained little changed at 26 basis points. REUTERS