Australian, New Zealand dollars quiet in light holiday trading, await Orr's speech

Dollar in focus: Trading activity for the Australian and New Zealand dollars remained subdued on Monday due to reduced market participation amidst holidays. 

Investors awaited a key speech from the Reserve Bank of New Zealand Governor Adrian Orr, which could significantly impact market expectations regarding future interest rate hikes following substantial shifts in pricing last week.

With many Asian markets closed for holidays including China, Hong Kong, Japan, South Korea, Singapore, Taiwan, Vietnam, and Malaysia, the Australian dollar (AUD) held steady at $0.6530. 

Last week, it managed a 0.2 per cent gain, breaking a five-week losing streak, with a 0.5 per cent rise on Friday, influenced by mixed US consumer price revisions that didn't alter the market's perception of Federal Reserve rate adjustments.

Meanwhile, the New Zealand dollar (NZD) remained resilient at $0.6150, having surged 1.4 per cent last week to $0.6157. It emerged as one of the strongest performing G10 currencies, bolstered by market speculation that the Reserve Bank of New Zealand might consider further rate hikes.

Market focus centred on the upcoming speech by Reserve Bank of New Zealand Governor Adrian Orr on Friday. 

Following a bold call by ANZ last Friday, markets began pricing in a 44 per cent likelihood of an RBNZ rate hike to 5.75 per cent at the February 28 meeting, with a 72 per cent chance of a rise in May.

The two-year swap rate continued its ascent, reaching a two-month peak of 5.245 per cent on Monday, after climbing 48.5 basis points the previous week. 

The Australian dollar weakened against the New Zealand dollar, hitting an eight-month low of NZ$1.0568 on Monday.

In terms of forecasts, Commonwealth Bank of Australia revised its short-term outlook for the Australian dollar upward, anticipating a trough at 64 cents this quarter, up from the previous projection of 63 cents. 

Joseph Capurso, head of international economics at CBA, expressed optimism about the AUD's prospects beyond the near term, citing potential negative implications for the USD and volatility coupled with positive effects on commodity prices and risk appetite amid a global economic turnaround.

(With Reuters Inputs)