SYDNEY, Jan 29 (Reuters) - The Australian and New Zealand dollars traded cautiously on Monday having failed to break higher the previous week, while a set of tests loomed ahead of an Aussie inflation report and Federal Reserve meeting.
The Aussie rose 0.2% to $0.6588 AUD=D3 , guided higher by a rebound in Hong Kong and Chinese shares. However, it has failed to hold above 66 cents in each of the sessions last week. It has support around $0.6565 after finishing the week 0.4% off.
The kiwi dollar was 0.2% higher at $0.6104 NZD=D3 , having lost 0.3% the previous week to as far as $0.6062, the weakest level in two months. It has support at the 200-day moving average of $0.6087.
The two drew some support from better China sentiment in the past week as Beijing rolled out a slew of stimulus measures to salvage the battered economy and stock markets. Investors are not yet convinced of the effectiveness of the policies but the sell-off in markets seems to have been stemmed for now.
In the meantime, interest rate jitters remain. The Federal Reserve will meet this week, with markets focusing on any signs of how soon policymakers would dial back the restrictive policy. Currently, the chance of a March cut is about 50-50. FEDWATCH
Down Under, the much-watched fourth-quarter inflation figures are due on Wednesday, which are likely to reinforce the case of a policy hold from the Reserve Bank of Australia and in turn weigh on the Australian dollar.
Economists expect headline inflation likely eased to 0.9% in the fourth quarter from the September quarter when it ran at 1.2%. The policy relevant trimmed mean measure of inflation also slowed to 0.9% from 1.2% in the three months to September.
Joseph Capurso, head of international economics at Commonwealth Bank of Australia, expects the Aussie to test $0.6530 this week before heading down to 63 cents by the end of the quarter.
"AUD/USD has been stuck in a tight range around 0.6600 for more than a week. We consider the next big move in AUD/USD will be down given ineffective Chinese policy stimulus is a downside risk to commodity prices."
Markets judged there is no chance that the RBA would surprise with a rate hike when it meets next Tuesday, but there is a 25% probability of a quarter-point cut in May.
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