The Australian and New Zealand Dollars Held Their Gains as Investors Processed Mixed Local Data

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The Australian and New Zealand dollars attempted to maintain their surge after Wall Street’s rebound augmented global risk sentiment. 

The Australian dollar dipped to $0.6954 AUD=D3, retreating from its previous 0.7% gain and the support at $0.6890, yet facing resistance at $0.7011. The New Zealand currency also pulled back a bit to $0.6334NZD=D3 after an overnight surge of almost 0.8%.

A thrilling survey on business conditions revealed that Aussie sales soared to unprecedented heights in January, completely overturning the speculation of a downturn.

The National Australia Bank (NAB) survey showed a rise in cost pressures – an undesired event for the Reserve Bank of Australia (RBA) as they strive to restrain inflation.

Last week, the central bank raised interest rates to a 10-year high of 3.35%, catching many off guard with their warning that two more hikes were imminent.

The market reacted to the potential of higher rates, increasing their predictions from 3.6% a month to an estimated 4.1%.

Our business survey measures of costs and prices appear to have peaked but remain very high with strength evident across all industries,” said NAB chief economist Alan Oster.

We continue to expect strong prints for wages and inflation to continue in the near term.NAB now sees the RBA lifting rates to a peak of 4.1% in May, including 25bp increases at each of the next three meetings,” he added. 

According to Westpac’s latest survey, the lack of optimism has been met with displeasure from consumers. The sentiment plunged 6.9%, akin to what is typically seen during recessions.

Despite the pessimistic atmosphere, people are still spending regularly with their bank cards. Experts believe this will change as mortgage instalments increase in cost.

Compared to the US, Australia’s yield curve rarely inverts completely – until the global financial crisis when it did just that.

Good news has come from the Reserve Bank of New Zealand as its survey shows that inflation expectations have dropped to 3.3% this quarter, compared to 3.62% at the end of last year’s December quarter. It is a reassuring sign that it will remain within its established 1-3% target rate for inflation over the next two years. 

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