The Australian and New Zealand dollars got a brief respite from selling on Friday as their U.S. counterpart was restrained by a round of weak economic data, though both were perilously close to reaching new lows for the year.
The Aussie was stuck at $0.6890 AUD=D3 , after finding some support around $0.6853. A break of the May trough of $0.6829 would trigger more selling while a move above $0.6920 resistance is needed to stabilise the technical outlook.
The kiwi dollar held at $0.6228 NZD=D3 , having come within a tick of its June low of $0.6197. A break there could unleash a further retreat to at least $0.5920 support.
Sentiment was helped by better data from China, particularly on the service sector, but prices for major commodities remained pressured by fears of a global recession.
Expectations of another rate rise by the Reserve Bank of Australia (RBA) next week have offered little support so far, with the U.S. Federal Reserve moving more aggressively.
Markets
0#YIB: are wagering heavily on a hike of 50 basis points to 1.35% and further rises to 3.25% by year end, though that is down from 3.75% just a couple of weeks ago. RBAWATCHStrength in retail sales and job vacancies argue for a half-point hike next week, though falling house prices could lower the peak for rates should losses accelerate.
David Plank, head of Australian economics at ANZ, is looking for 50 basis points next week but suspects the pace of tightening might slow to 25 basis points in August.
"A 25bp increase will mean the RBA will have tightened by 150bp over four monthly meetings, which is a substantial move considering the floating rate nature of much of Australia's household debt," he said.
"A very large increase in Q2 CPI may, however, force the RBA's hand on a third 50."
The consumer price report is due out on July 27 and could well show headline inflation climbing to around 6%, peaks not seen since 2001 when the introduction of a 10% sales tax temporarily lifted prices. Excluding this episode, the last time inflation was that high was in 1990.
While inflation has been a major burden for bond markets, yields have eased in recent days as investors focused more on the risks of recession globally.
Yields on 10-year bonds AU10YT=RR have dived almost 60 basis points since mid-June to stand at 3.60%, narrowing the premium over Treasuries to 59 basis points.
