SYDNEY, Jan 24 (Reuters) - The Australian and New Zealand
dollars were at the mercy of global risk aversion on Monday as
most equity markets extended their decline, while investors
awaited a key reading of domestic inflation, which could impact
on interest rates.
The Aussie was flat at $0.7180 and well short of
last week's peak of $0.7275. Support lies at $0.7170 while
resistance comes in at $0.7277 and $0.7314.
The kiwi dollar lagged badly at $0.6707, just a
whisker from its December trough of $0.6702. A break would take
it to territory not visited since late 2020 and risk a further
decline to at least $0.6590.
Markets were tense ahead of a Federal Reserve policy meeting
at which it is expected to open the door to a U.S. rate rise as
soon as March and to winding back its vast balance sheet, which
could drag on risk assets.
Domestically consumer price figures on Tuesday could set the
stage for the Reserve Bank of Australia (RBA) to end its bond
buying in February and reinforce market wagers for a hike as
soon as May or June.
Median forecasts are for the CPI to rise 3.2% on the year in
the December quarter, while core inflation is seen picking up to
its fastest since 2014 at 2.4%.
Both National Australia Bank and Commonwealth Bank of
Australia predict trimmed mean inflation will hit 2.5%, putting
it back in the middle of the RBA's 2%-3% target band two years
earlier than predicted by policy makers.
"This would mean the RBA would need to revise up their CPI
forecasts and we think the Bank will be able to forecast core
inflation being at the mid-point of the 2-3% band across their
entire forecast horizon," said Taylor Nugent, an economist at
"Come the RBA's February meeting, QE is clearly gone, while
for the rates view much depends on its willingness to tolerate
inflation at or above target as it waits until wages growth is
closer to 3% plus."
The bond market has already priced in a lot of tightening
risk with three-year yields up at 1.14% and near
levels last visited in mid-2019.
The Reserve Bank of New Zealand (RBNZ) is well ahead of the
game having already hiked twice and fully expected to move again
at its meeting on Feb. 23.
However, higher rates have done the kiwi no favours, with
the currency two cents lower than when the RBNZ first pulled the
trigger in October.
(Editing by Sam Holmes)