The Australian and New Zealand dollars were trying to sustain a rally on Monday after a dovish Federal Reserve Chair Jerome Powell caught markets by surprise, sparking a turnaround in the recent strength of the U.S. dollar.
The Aussie AUD=D3 was little changed at $0.6653, after rising 0.4% on Friday to as high as $0.6675. It is, however, not too far from its 2023 trough of $0.6573 and faces resistance at the 21-day moving average of $0.6675.
The kiwi NZD=D3 was 0.2% higher at $0.6287, having also jumped 0.8% on Friday to a 10-day high of $0.6304. It has support at the 200-day moving average of $0.6156.
Investors now await a key meeting between U.S. President Joe Biden and House Republican Speaker Kevin McCarthy to discuss the debt ceiling on Monday, after talks stalled on Friday.
Many currency analysts say brinkmanship is to be expected heading toward the ostensible "X-date" in early June, when the Treasury is projected to run out of money.
"Republicans want big spending cuts and larger-than-projected concessions could imply lower yield support for the USD down the road. A kick of the can down the road could boost the dollar the most," said analysts at Barclays.
The dollar also sank after Federal Reserve Chair Powell who said on Friday that tighter credit conditions mean "our policy rate may not need to rise as much as it would have otherwise to achieve our goals."
In the meantime, traders are awaiting the rate decision from the Reserve Bank of New Zealand on Wednesday, with futures implying there is a 40% chance that it could opt for a 50 basis-point increase to bring the cash rates to 5.75%, a level higher than the bank's own projection.
0#RBNZWATCH Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities, expects the terminal rates to hit 6%, compared with 5.5% before, citing upside to inflation from budget stimulus and higher net migration.
Benchmark New Zealand two-year interest rate swaps NZDSM3NB2Y= hit a 2-1/2 month high of 5.5% on Monday, before easing back to 5.425%.
