Australia, NZ dollars supported as markets pare Fed rate risk

The kiwi dollar was flat at $0.5845 NZD=D3, after climbing 0.7% overnight to a one-month high of $0.5863. Resistance lies at $0.5865, with $0.5993 the major target and support at $0.5774.

Markets still imply around a 70% chance the Reserve Bank of New Zealand will raise its 2.5% cash rate when it next meets in September, and are fully priced for 3.0% by year-end. 0#NZDIRPR

Key 2-year swap rates hit a two-month top of 3.6998% NZDSM3NB2Y= early in the week, before a rally in Treasuries saw them ease back a bit to 3.5825%.

Australian 10-year bond yields had likewise eased to 4.893% AU10YT=RR, from a recent peak of 4.933%.

"A weaker U.S. dollar and the repricing of Fed expectations have supported the cyclical growth narrative, while a resilient commodity backdrop has helped AUD/USD push back towards the psychologically important $0.7000 level," said Chris Weston, head of research at Pepperstone.

"With the Fed appearing firmly on hold, and pockets of renewed buying across commodity markets, pro-cyclical FX is finding some form."

The dovish turn on U.S. rates also benefited risk sentiment generally, though continued hostilities in the Gulf made for an uncertain geopolitical outlook.

All of which left the Aussie a shade easier at $0.6998 AUD=D3, having risen almost 0.5% overnight to a three-week top of $0.7021. The next chart barrier is $0.7071, with support at $0.6913 and $0.6867.

It was aided by a sharp rally on the yen which took it to a six-week peak at 113.39 AUDJPY=, a rise of 1.0% for the week so far.