AUD, NZD on Defensive in Case Fed, RBA make Policy Waves

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SYDNEY, June 16 Reuters The Australian and New Zealand dollars were on the defensive on Wednesday in case a policy meeting of the Federal Reserve produces even a whisper of stimulus reduction, which could also threaten the recent rally in bonds.

The Aussie steadied at 0.7693, having slipped as far as 0.7675 overnight. Major support is not far away at the June low of 0.7646 and a breach would risk a retreat to 0.7580.

The kiwi was looking vulnerable at 0.7136, after briefly breaking support at 0.7116 overnight. It risks a return to 0.7070 or even 0.7000.

Much depends on whether Fed members lift forecasts for rates and inflation, and whether Chair Jerome Powell stays dovish in his postmeeting news conference.

From a market perspective, the key will be whether the FOMC began talking about talking about tapering its asset purchases, said Damien McColough, Westpacs head of rates strategy. We think that is a strong likelihood.

However, we think Fed Chair Powell will strongly emphasise that this is just the beginning of an extended discussion, he added. Indeed, we suspect that he will reiterate that the recent jump in inflation is transitory.

Market thinking on domestic policy could also change when Reserve Bank of Australia RBA Governor Philip Lowe gives a speech on the economy on Thursday.

Minutes of its June meeting showed it would consider a number of possible revisions to its bond buying campaign at its July policy meeting. Given the sharp Vshaped recovery that is…

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