SYDNEY: The Australian and New Zealand dollars are set for a weekly loss on Friday as a hawkish outlook on U.S interest rates lifted the battered greenback, though the direction of travel will now rest on progress in looming Sino-US trade talks at the weekend.
The Aussie slipped 0.2% to $0.6387 having fallen 0.4% overnight away from a five-month peak of $0.6515 hit on Wednesday.
It is set for a weekly loss of 0.9% to end four weeks of gain, with resistance now at the 200-day moving average of $0.6457.
The kiwi dollar eased 0.3% to $0.5886 after losing 0.6% overnight, falling further from a six-month top of $0.6029 hit in late April.
In a bearish sign, it broke the bottom of a recent trading range at $0.5894 but still has support at the 200-day moving average of $0.5882.
The US dollar received much-needed support after the Federal Reserve held rates steady and signalled it was in no rush to ease.
Overnight, futures scaled back the degree of expected policy easing this year to 68 basis points from 78 bps a day earlier.
A US-U.K. trade deal has raised hope of progress in Sino-US talks in Switzerland on Saturday, giving the greenback breathing room amid chaos brought about by changing US trade action.
US President Donald Trump has said tariffs on Chinese goods will come down from 145%.
Australia, NZ dollars bounce on hopes for progress in US tariff stalemate
“The USD is likely to recover in the short-term as investors re-evaluate the change in tone on trade and the likelihood of market-friendly deals,” said Chang Wei Liang, a foreign exchange and credit strategist at DBS Bank.
“Though it is unclear whether his ‘deals’ could lead to a meaningful reduction in tariffs.” Despite the pull-back in Fed easing expectations, investors still assume the Reserve Bank of Australia will cut its cash rate by 25 basis points to 3.85% when it meets on May 20 given a slowdown in inflation and softness in consumer spending.
Across the Tasman Sea, markets are still wagering heavily on a rate cut from the Reserve Bank of New Zealand this month to 3.25%.
Swaps imply continued easing to a terminal rate of 2.75%. Westpac Banking on Friday pencilled in an extra RBNZ cut in July to 3%, citing downside risk to the economy from the United States’ trade war and associated uncertainty.
“We don’t think the RBNZ will be able to see its way through the fog of war by July or even August. Hence, it’s likely they will continue to cut the OCR,” said Kelly Eckhold, chief economist at Westpac New Zealand.
American Dollar Exchange Rate