Monday, October 3, 2022

Australia, NZ in a rut as upbeat data overlooked

SYDNEY, Jan 11 (Reuters) – The Australian and New Zealand dollars boxed-in on Tuesday as an increasingly bullish outlook for US interest rates dominated upbeat news on the domestic economy.

The Aussie was a shadow strong at $0.7182, but was sandwiched between support at $0.7130 and resistance at $0.7203. There is a need to break $0.7276 to end the deadlock of the past few weeks.

The Kiwi Dollar rose to $0.6769 but again got trapped in a tight band of $0.6733 / $0.6782. It faces more resistance near $0.6795 and $0.6835, with major support near $0.6702.

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The Australian found only fleeting comfort in data showing retail sales rose 7.3% in November, far higher than forecast for 3.9% growth and evidence that the economy had a lot of momentum before the latest coronavirus outbreak. read more

“Retailing is now up 5.8% year over year, which is very high and well above the spending trends that were pre-pandemic,” said Diana Mousina, a senior economist at AMP Capital.

Sales will be hit this month as Omicron’s rapid spread has scared shoppers and put many workers in renewed self-isolation for supply chains.

Still, the massive spending power in November should reassure the Reserve Bank of Australia (RBA) that the economy has the momentum to weather the disruptions.

Markets have long been betting that growth and inflation will be strong enough to see the RBA rise by June, even as policymakers say a move is unlikely until 2023.

Futures are fully priced to rise by 0.25% in June and at least 0.75% by the end of the year.

However, the market is even more aggressive on the Federal Reserve where the first increase is expected in March.

Many large banks believe that investors are still not aggressive enough. read more

“The market needs to increase its terminal estimate for Fed rates,” said Tom Porcelli, chief US economist at RBA Capital Markets.

The fund rate in futures is around 1.75% and not until early 2024.

“The reality is this is very little and we see real scope for the Fed to go smoothly four times this year and four times next year,” warned Porcelli. “That means the funds are easily sitting north of 2% by the end of next year.”

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Editing by Sri Navaratnam

Our Standards: Thomson Reuters Trust Principles.

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