The Australian and New Zealand dollars gained some traction on Wednesday as concern over U.S. interest rates eased just enough to allow a rally in global risk appetites.
The Aussie edged up 0.1% to $0.7212 AUD=D3 and away from its recent low of $0.7130, A break above $0.7276 resistance is needed to end the deadlock of the past few weeks.
The kiwi dollar firmed to $0.6790 NZD=D3 , up from last week's trough of $0.6733. It faces stiff resistance at $0.6795 and $0.6835, with major support down around $0.6702.
Equity markets rallied and the U.S. dollar faded a bit after Federal Reserve Chair Jerome Powell took a measured tone on the outlook for policy tightening, a relief for investors who feared he might flag a more aggressive path for increases.
While markets have moved to price in a first increase for March, they still only have three hikes this year and a peak for Fed funds at a relatively low 1.75-2.0%.
Many bank analysts are warning that outlook is still too benign and the Fed will have to take more drastic action.
"The Fed's focus needs to be on getting inflation down quickly," said Brian Martin, a senior international economist at ANZ. "The longer it waits, the higher the risk of recession, as it will certainly need to act more aggressively if it delays."
"We now expect the Fed to begin lift-off in March and raise its target range by 125 basis points this year in five steps."
Such a rapid pace would almost certainly put the Fed far ahead of the Reserve Bank of Australia (RBA) which is still arguing that a domestic increase is unlikely until 2023.
It would also sharply widen the spread between U.S. and Australian rates and likely put downward pressure on the Aussie.
Another risk is that the increases needed to tame U.S. inflation tips the economy into recession, with ANZ noting that every tightening cycle in the past 42 years has led to a downturn.
Again, such an outcome would weigh heavily on global growth and commodity prices and, in turn, undermine the Aussie.
