USA Dollar

Australia, NZ dlrs bow to US dollar strength, bowl over yen — TradingView News

The Australian and New Zealand dollars were on the back foot on Wednesday as markets took a slightly more dovish view about domestic interest rates, while worrying that the outlook for U.S. easing could take a hawkish turn.

Yet, both found buyers against the yen as investors wagered the Bank of Japan would keep overall policy accommodative for some time despite having finally ended negative rates.

That left the Aussie struggling at $0.6522 AUDUSD, after losing 0.4% on Tuesday, though that was off a two-week low of $0.6504. In contrast, it touched a three-week high on the yen at 98.65 AUDJPY, having gained 0.7% overnight.

The kiwi dollar looked more vulnerable at $0.6040 NZDUSD, having slid 0.5% the previous session to its lowest in almost four months at $0.6034. The next major support level was down around $0.6000.

The kiwi still rallied 0.6% versus the yen to reach 91.33 (NZDJPY=R) as Japanese rates of 0 to 0.1% remain far below the 5.5% on offer in New Zealand.

Aussie cash rates are at 4.35% and look set to stay there for at least a few months after the Reserve Bank of Australia (RBA) on Tuesday signalled it was in no hurry to ease policy.

A run of softer data on unemployment, inflation and consumption did see the RBA drop a warning about another rate rise, instead emphasising that nothing was ruled in or out.

“We view this as a clear dovish shift to a neutral policy stance,” said Andrew Boak, an economist at Goldman Sachs. “We expect the RBA to move to an explicit easing bias over the coming months and to commence an easing cycle from August.”

Futures imply around a 76% chance of a first rate cut in August, and a move to 4.10% is fully priced for September. About 43 basis points of easing is priced in by year end. (0#RBAWATCH)

That could change depending on local jobs data due on Thursday where analysts are counting on a bounce of at least 40,000 to make up for two very soft months.

Also crucial will be any updates to the policy outlook from the Federal Reserve later on Wednesday amid speculation members might now only see two rate cuts this year instead of three.

Such a shift would likely see yields rise globally and lift the U.S. dollar across the board.

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