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Aussie, Kiwi steady after setback from U.S. bond yields surge

May 30, 2024

Key points:

  • Aussie pinned at $0.6605: After retreating from $0.6667, the AUDUSD faces immediate support at $0.6592 and resistance at $0.6680.
  • Kiwi eases to $0.6108: With resistance at $0.6170 and support around $0.6084, the NZDUSD reflects cautious trading.

The Australian and New Zealand dollars have stabilised after experiencing setbacks due to a surge in U.S. bond yields. This rise in yields has dampened risk appetites and obscured the outlook for global rate cuts.

Picture: Aussie stabilises as seen on VT Markets app.

Currently, the Australian dollar (AUDUSD) is steady at $0.6605, having pulled back from $0.6667 overnight as the U.S. dollar strengthened. The immediate support level is at $0.6592, while resistance lies at $0.6680. This range suggests a cautious stance from traders amid global economic uncertainties.

Chart showing AUD/USD (Australian Dollar/US Dollar) trading on VT Markets, a forex CFDs brokerage. The chart indicates a closing price of 0.66126 amidst market sensitivity to inflation data and U.S. bond yields surge. April's unexpectedly high inflation reading has raised concerns about potential rate hikes by the Reserve Bank of Australia (RBA), with futures markets now implying a 27% chance of an increase in the 4.35% cash rate, up from 14% before the inflation data release.

Picture: New Zealand dollar sees a dip on the VT Markets app.

Similarly, the New Zealand dollar (NZDUSD) has eased slightly to $0.6108, following a 0.4% decline in the previous session. The resistance level is set at $0.6170, which was the peak at the start of the week, with support around $0.6084. The kiwi’s recent movements indicate a guarded approach in the market.

Bond markets have also felt the impact, with Treasury yields climbing to one-month highs. This has pushed Australian 10-year yields to a three-week peak of 4.476%, while three-year bond futures have dropped 13 ticks for the week, standing at 95.890.

Surging inflation and rate hike speculation

The Australian market remains sensitive to inflation data, with April’s unexpectedly high inflation reading raising concerns about potential rate hikes by the Reserve Bank of Australia (RBA). Futures markets now imply a 27% chance of an increase in the 4.35% cash rate, up from 14% before the inflation data release.

On a positive note, Australian business investment data showed a 1.0% rise in the first quarter, driven by a 3.3% increase in spending on plant and machinery. This strength helps offset some of the unexpected weakness in construction work during the quarter, though overall economic growth is still expected to be minimal.

New Zealand’s fiscal strategy

In New Zealand, the government’s budget report projected a wider deficit amid sluggish economic growth and rising unemployment. The budget includes tax relief measures balanced by savings and new revenue, aiming for a neutral impact on inflation. Additionally, the government plans to issue NZ$38 billion of bonds in 2024/25, up NZ$2 billion from the previous outlook.

Overall, the Australian and New Zealand dollars are navigating a complex economic landscape, influenced by global yield movements and domestic economic data. Traders should closely monitor these support and resistance levels, as well as upcoming economic reports, to gauge potential market shifts.

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