Australia, NZ dlrs struggle to make headway amid global risks

By Wayne Cole

SYDNEY, May 26 (Reuters) - The Australian dollar eased on Thursday as local data proved too mixed to offset the drag from weak global share markets, while the New Zealand dollar struggled to get much leverage from higher domestic interest rates.

The Aussie dipped 0.1% to $0.7088 AUD=D3 , having faltered short of $0.7126 resistance for the third session in a row. Support lies at $0.7070 and $0.7036.

The kiwi dollar faded to $0.6470 NZD=D3 , and away from Wednesday's three-week top of $0.6514. Support comes in around $0.6424 with resistance up at $0.6568.

The Aussie was not helped by data showing Australian business investment fell 0.9% in the first quarter when analysts had looked for a rise of 1.5%.

The detail was less soft, however, with spending on plant and machinery rising and investment plans for 2022/23 upgraded markedly.

"The strength in business investment plans sits against an uncertain and macro backdrop of high inflation, soaring commodity prices, rising interest rates and falling consumer sentiment, so it is good to see that businesses still remain optimistic around the outlook," said Diana Mousina, an economist at AMP Capital.

In any case, the data are unlikely to shake the Reserve Bank of Australia's (RBA) confidence in the economy or change the outlook for more rate rises this year.

Futures 0#YIB: still imply quarter-point hikes in June and July and a move of 50 basis points in August following inflation data for the second quarter which are likely to be red-hot.

The Reserve Bank of New Zealand (RBNZ) is already far ahead in its tightening campaign having hiked by another 50 basis points to 2.0% on Wednesday. It also projected rates could reach 3.4% by the end of the year and ultimately peak at a lofty 4.0%.

There are only four policy meetings left this year, implying at least two more moves of 50 bps. Swaps are leaning toward half-point moves in July and August, followed by quarter-point rises in October and November. RBNZWATCH

That hawkish outlook hammered bonds, sending two-year swap rates NZDSM3NB2Y= up to 3.76% from 3.45% ahead of the RBNZ decision.

Andrew Boak, an economist at Goldman Sachs, duly revised up his forecast for rates to 3.5% by the end of this year but felt that would be enough.

"Our terminal rate forecast is somewhat less aggressive than RBNZ guidance and market pricing as we expect material headwinds to growth and the housing market to emerge by year-end, alongside clearer signs of easing global inflationary pressure," he argued.
Editing by Simon Cameron-Moore

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