The Australian and New Zealand dollars enjoyed a much needed respite on Thursday, after weak global economic data raised hopes that central banks may not need to tighten much more, lifting risk assets and driving bond yields lower.
The Aussie AUD=D3 was standing at a one-week top of $0.6482, having rallied 0.9% overnight. It cleared a key resistance level of $0.6450, taking some pressure off its recent downward trend which had dragged it to fresh nine-month lows.
The kiwi dollar NZD=D3 was hovering at $0.5979, after rising 0.5% on Wednesday to a one-week high of $0.5984. It now faces resistance at $0.5996.
Having wallowed near lows for much of this week on concerns over China's slowdown and a buoyant U.S. dollar, the two currencies found support after weak U.S. and European business activity suggest rate hikes are working to cool inflation.
That added to a shift to the recent trading narrative that rates would have to stay higher for longer given a slew of strong data showed an acceleration in the U.S. economy.
Futures are still favouring a pause from the Fed next month but now see a 57.7% chance that the Fed would hold steady in November as well, up from 54% previously. They are also back to pricing in rate cuts of 102 basis points next year. FEDWATCH
TD Securities on Thursday entered a long trade on the Australian dollar, targeting a 4% move over the next two months to $0.6740, as stretched short-term valuations suggest a reversal is imminent.
"In terms of technicals, 0.64 offers support and with momentum for AUDUSD becoming less negative, we think it is the beginning of a break out higher," said Ray Ng, FX quantitative strategist at TD.
For now, investor focus is turning to the speech from Federal Reserve Chair Jerome Powell at the Jackson Hole conference on Friday, which would also be a blow to stressed bond markets if he sounds in any way hawkish.
Local bond markets rallied in tandem with Treasuries. Australia's 10-year bond yields AU10YT=RR slumped 12 basis points to a two-week trough of 4.119%, while New Zealand's 10-year yields NZ10YT=RR also fell 12 bps to 4.98%, having hit a 12-year high of 5.185% earlier this week.
