Australia, NZ dlrs left far behind as Fed sets the rate pace



By Wayne Cole

SYDNEY, Dec 2 (Reuters) - The Australian and New Zealand dollars were clinging to support on Thursday as the risk of early Federal Reserve rate hikes roiled global markets to the benefit of the U.S. currency.

The Aussie was hanging on at $0.7114 AUD=D3 , finding support just under $0.7100 having briefly touched a 13-month trough of $0.7063 late on Tuesday. The next major bear target is a low from November last year at $0.6990.

The kiwi dollar was also in trouble at $0.6822 NZD=D3 , uncomfortably close to its 13-month low of $0.6773. There is now not much in the way of chart support until $0.6700.

Both currencies were undermined by another bout of risk aversion which saw Wall Street swing lower overnight and longer-term Treasury yields fall sharply as the market prices in the risk of a more aggressive U.S. policy tightening.

Analysts at CBA now expect the Fed to complete tapering in April next year and start hiking the funds rate in June, which is already priced in to futures. FEDWATCH

CBA, however, expects rates to peak at 2.5% in 2024, far above the market top of 1.5% and an outcome that would likely provide long term support to the U.S. dollar.

The Reserve Bank of Australia (RBA) still insists a local rate rise in not likely until at least 2023, though the risk is for an earlier move given data show the economy is rebounding faster than previously expected.

The market is almost fully priced for a rise to 0.25% by June, much in line with the Fed, and rates nearing 1% by year end. RBAWATCH

The Fed's sudden shift toward an early end to tapering has also sparked speculation the RBA may follow and perhaps move as early as its policy meeting on Dec. 7.

"We expect the RBA to announce, next week, a decision to taper its bond buying to A$2 billion a week from February, and likely end QE in May," said Nomura economist Andrew Ticehurst.

That would be a major surprise as RBA Governor Philip Lowe has indicated a decision on tapering would not be made until the February meeting.

Much of the market already expects they will halve their bond buying to A$2 billion and end it around mid-year.

"We also forecast a first RBA rate hike in November 2022, but again flag material – and rising – risk of an earlier rate lift-off in August," Ticehurst said.
Editing by Shri Navaratnam

Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.

All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.

Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.

We are using cookies to give you the best experience on our website. Read more or change your cookie settings.

Risk Warning: Your capital is at risk. Leveraged products may not be suitable for everyone. Please consider our Risk Disclosure.