The Australian and New Zealand dollars came under pressure again on Monday as their latest rallies came to nothing in the face of diverging interest rate outlooks and yield spreads.
The Aussie was struggling at $0.6705 AUD=D3 , after a 1.1% drop on Friday, though that still left it 0.5% firmer for the week. Resistance lies at the recent seven-week high of $0.6808, with support around $0.6620.
The kiwi dollar was back at $0.6195 NZD=D3 , having shed 1.3% on Friday to wipe out all the week's gains. Support comes in at $0.6185 and a break could see a retreat toward $0.6085.
Both have been undermined by a shift in market expectations for higher interest rates in the United States and Europe.
Futures imply an around 80% chance of a quarter-point hike from the Federal Reserve in May, and are now flirting with the risk of a half-point rise from the European Central Bank.
In contrast, markets imply an 80% probability the Reserve Bank of Australia (RBA) will hold its rates at 3.60% in May, likely marking the end of its tightening cycle.
0#RBAWATCH This divergence has seen yield differentials move against the Antipodeans.
Notably, the premium offered by Australian 10-year bonds over German bunds has shrunk to 90 basis points, the lowest since 2009 and down from 220 basis points this time last year.
That has helped lift the euro to its highest versus the Aussie since late 2020 at A$1.6445 EURAUD=R , while the Aussie has also lost ground to the pound and Swiss franc.
Adam Boyton, head of Australian economics at ANZ, thinks the RBA will stay on hold in May - but that might not be the end of the cycle.
"Our central scenario has the next hike in August, bringing the cash rate to a 3.85% peak for the cycle," he said. "This hike would be in response to persistent stickiness in the Q2 inflation report, due in late July, and a stronger wage outlook."
"Risks remain tilted towards a higher terminal rate in our view, and an upside surprise to Q1 trimmed mean inflation would increase the probability of a hike in May."
The consumer price report for the first quarter is due on April 26 and, while headline inflation should cool, analysts suspect core prices could prove more stubborn.
New Zealand's CPI is due on April 21 and forecast to show headline inflation stuck at an annual 7.2%, partly due to a weather-driven spike in food prices.
