The Australian dollar caught a break on Tuesday from recent sharp falls, tracking gains in the Chinese currency, while its New Zealand counterpart looks to get another boost from a likely unprecedented jumbo rate hike from its central bank.
The Aussie - often used as a liquid proxy for the Chinese currency - edged up 0.2% to $0.6620 AUD=D3 , having retreated 1% overnight to $0.6585, its lowest level in more than a week on concerns about spreading COVID curbs in China as infections surged.
The antipodean currency appeared to have found some support above 66 cents.
The offshore Chinese yuan CNH= strengthened 0.3% after heavy selling in the previous day.
The kiwi dollar firmed 0.4% to $0.6125 NZD=D3 , after slipping 0.8% overnight. The currency is bracing for the big test from the Reserve Bank of New Zealand on Wednesday when the central bank could hike by a record 75 basis points to tame red-hot inflation.
However, it is a close call. A Reuters poll found 15 of 23 economists expect the central bank to lift the cash rate by 75 basis points. The remainder are picking a 50-basis-point increase.
"Recent NZDUSD gains and NZD's relative outperformance versus the AUD is at risk this week if the RBNZ disappoints relative to market expectations of a hawkish outcome," said analysts at Barclays.
"AUDUSD is likely to remain volatile and capped around 0.6800, tracking risk sentiment.... News flow from China could also exert an influence on the AUD, especially if there are renewed signs of tightening in mobility as cases spread."
The Aussie hit a 8-month low against the kiwi on Tuesday at NZ$1.0800 AUDNZD= as the outlook for local interest rates diverged.
Reserve Bank of Australia Governor Philip Lowe will give a speech titled "Price Stability, the Supply Side and Prosperity" at a dinner event on Tuesday, and markets will be looking for any signs of a pause in interest rate hikes in the upcoming policy meetings.
In October, the RBA surprised markets by lifting interest rates by a smaller-than-expected 25 basis points, saying they had already risen substantially. It stuck with the slower pace of hikes again at its last meeting on Nov. 1
