SYDNEY: The Australian and New Zealand dollars took a breather on Friday after a week of choppy trading, with a disappointing survey on Chinese manufacturing providing another reason for caution.
China’s official purchasing managers’ index (PMI) unexpectedly slipped into contraction at 49.5 in May, a blow to hopes the Asian giant was finally picking up steam.
Much now depends on a key reading of US inflation due later in the session that could make or break the case for a Federal Reserve rate cut as early as September.
The Aussie was flat at $0.6633, after edging up 0.3% overnight, little changed on the week after ricocheting between support at $0.6591 and resistance around $0.6680.
The kiwi dollar was a shade firmer at $0.6121, having bounced from a $0.6090 low the previous session. Resistance lies at the recent 10-week top of $0.6170, with support at $0.6084.
A rally in US Treasuries supported risk sentiment and gave a much needed reprieve to local bonds, where yields had been shoved to four-week highs.
Three-year bond futures bounced to 95.950, from a 95.870 low, leaving them down 7 ticks for the week.
The outlook for Australian interest rates have also waxed and waned this week as markets turned super-hawkish on a surprisingly high inflation reading, before relaxing a little amid softer US data.
Futures are back to implying a 12% chance of a hike from the Reserve Bank of Australia (RBA), down from 27% on Thursday.
The first easing is now seen as likely from May next year, compared to September a day before.
Many analysts are more dovish, still tipping a move before Christmas.
Australia, NZ currencies hit one-month lows on yen, subdued against US dollar
American Dollar Exchange Rate