SYDNEY: The Australian and kiwi dollars were subdued in holiday thinned trade on Monday, while traders looked ahead to a central bank speech in New Zealand that could make or break market bets for another hike given the huge shift in market pricing last week.
Most of Asia including China, Hong Kong, Japan, South Korea, Singapore, Taiwan, Vietnam and Malaysia are closed for holidays.
The Aussie was flat at $0.6530, having eked out a 0.2% gain last week to break a five-week losing streak. It rose 0.5% on Friday, helped by mixed U.S. consumer price revisions that did not alter the market's outlook on Fed rate cuts.
The kiwi was buoyant at $0.6150, after jumping 1.4% last week to $0.6157. It was one of the best performaing G10 currencies, having been lifted by market bets that Reserve Bank of New Zealand may have to hike again.
The major risk this week would be the speech by Reserve Bank of New Zealand Governor Adrian Orr on Friday.
After the bold call from ANZ on Friday, markets moved to price in a 44% chance that the RBNZ would hike rates to 5.75% when it meets on Feb. 28. A rise in May is seen at a 72% probability.
The two-year swap rate kept climbing to hit a fresh two-month top of 5.245% on Monday, having risen 48.5 basis points last week.
The Aussie lost more ground to the kiwi, sliding further to an eight month low of NZ$1.0568 on Monday.
Against the U.S. dollar, Commonwealth Bank of Australia on Monday revised higher the near term forecast for the Australian dollar, which is now expected to trough at 64 cents this quarter, up from the previous forecast of 63 cents.
"Beyond the next few months, the outlook for AUD is bright. A turnaround in the global economy will be a negative for the USD and volatility, and positive for commodity prices and risk appetite," said Joseph Capurso, head of international economics at CBA.
(Reporting by Stella Qiu; Editing by Stephen Coates)