The Australian and New Zealand dollars held on to strong gains on Thursday, following an impressive overnight rally after U.S. inflation missed expectations, triggering a rush into risk assets.
The risk-sensitive Aussie AUD=D3 was marginally down 0.09% at $0.7075, though that was after it touched an overnight high of $0.7109 and jumped 1.7%, marking its strongest daily increase since June.
The kiwi NZD=D3 slipped 0.11% to $0.63970, following a 1.8% surge overnight, the largest daily gain to date this year.
U.S. inflation data showed that consumer prices did not rise in July due to a sharp drop in the cost of gasoline, with the consumer price index increasing by a slower-than-expected 8.5%, following a 9.1% rise in June.
The softer data sent risk assets skyward, as investors turned hopeful that the Federal Reserve would become less aggressive on interest rates hikes.
"For the FOMC, the July inflation report is a pleasing first step towards being able to claim victory over inflation," said Elliot Clarke, senior economist at Westpac.
"However, at least one or two more similar readings for inflation are necessary if they are to have confidence that the inflation emergency has passed."
On the domestic front, statistics released by the Real Estate Institute of New Zealand on Thursday showed that New Zealand house prices fell in July, with the median price recording its first annual fall since 2011.
"House prices continue to decline, and there's not much in the economic outlook that will stop that," said economists at ANZ.
"In fact, we're forecasting that the economy will sail pretty close to recession over 2023 as rapidly rising interest rates flow through to outright falls in household consumption, business investment, and residential construction activity."
Markets have already fully priced in a 50 basis point hike to 3% by the Reserve Bank of New Zealand at its meeting next week.
0#RBNZWATCH In Australia, investors are keenly watching next week's second quarter wage price index release, which will offer signs of its inflation outlook. In the meantime, however, moves in the risk-sensitive currency will remain largely pegged to the broader U.S. dollar trends and global economic outlook.
"Given rising global interest rates and high inflation, market participants are likely to further downgrade the global growth outlook which is a negative for the pro-cyclical AUD," said Carol Kong, senior associate for currency strategy and international economics at the Commonwealth Bank of Australia.
