Australia, NZ dollars get timely support from US rate bets

The Australian and New Zealand dollars held firm on Tuesday having got a lift from wagers on an outsized U.S. rate cut this week, which helped both currencies dodge a bearish break of chart bulwarks.

The Aussie was steady at $0.6747 AUDUSD, having bounced 0.7% overnight from support at $0.6689. Resistance now lies at $0.6767 and $0.6823.

The kiwi dollar idled at $0.6190 NZDUSD, after also rallying 0.7% the previous session. Support comes in at $0.6155 and $0.6107, with resistance at $0.6253 and $0.6298.

Both were supported by a drop in Treasury yields as futures shifted to price in a 67% chance the Federal Reserve will cut rates by half a point on Wednesday. (FEDWATCH)

An aggressive move would likely be taken by the market as adding to the chance of an earlier easing from the Reserve Bank of Australia (RBA).

Markets see scant prospect of a cut in the 4.35% cash rate at the RBA's meeting next week given policy makers have been sounding consistently hawkish. (0#RBAWATCH)

The probability of a quarter-point easing in November rises to 37%, while a December move is up at 86%.

"Regardless whether the Fed opts to front load cuts, the more enduring takeaway is likely to be a reassuringly dovish Chair Powell press conference and meaningful revisions to their dot plot projections," said Richard Franulovich, head of FX strategy at Westpac.

On the cautionary side, the China story remains problematic for AUD," he added. "Entrenched disinflationary pressures, slowing growth momentum and a prolonged property downturn, characterised by excess leverage and supply, continue to sap sentiment towards China."

The Asian giant is Australia's biggest export market, particularly for iron ore and China's steel production in July and August was running at two-year lows.

Domestically, the main hurdle for the Aussie this week will be jobs data for August on Thursday where analysts forecast a moderate rise of 25,500 and a steady unemployment rate of 4.2%.

Any increase in the jobless rate would narrow the odds on a November rate cut.

Over in New Zealand, data due Thursday are expected to show the economy shrank by 0.4% in the second quarter, underlining the need for more policy easing. (0#RBNZWATCH)

Markets are fully priced for another quarter-point cut in October with a 25% chance of 50 basis points. Swaps imply 87 basis points of easing over the next two meetings.