Australia's DLR Bulls are Hedging Their Bets While Waiting for Further Information on Ukraine

On Wednesday, the Australian and New Zealand currencies stopped to absorb a month's worth of substantial gains as markets awaited Russian rhetoric of de-escalating its military action in Ukraine.

The announcement boosted risk sentiment, but it also pushed down energy prices, making it a double-edged sword for resource-heavy currencies.

For the time being, investors were satisfied to bank the Australian dollar's recent gains, which saw it hit five-month highs against the US dollar, a five-year high against the euro, and a seven-year high against the yen.

The Australian dollar remained stable at $0.7510, having peaked at $0.7540 earlier in the week and falling just shy of its October high of $0.7555. The support level is $0.7450.

The kiwi dollar rose to $0.6950 after rebounding from a low of $0.6876 overnight. Resistance is located at the recent high of $0.6988 as well as the significant $0.7000 barrier.

Both were boosted by yen inflows as the Bank of Japan (BOJ) intervened extensively in bond markets to maintain rates around zero. This month, Australian 10-year rates increased by 66 basis points to 2.826 percent.

Because of that enticing yield advantage, the Australian dollar has risen more than 10% this month to 92.24 yen, while the New Zealand dollar has risen 9.1% to 84.99 yen.

Local statistics bolstered the narrative, with new house construction consents in New Zealand increasing 10.5 percent in February, more than canceling out a surprising decline in January.

A study of business mood in March showed modest improvement following a poor showing the previous month, as employers complained about labor shortages and rising expenses.

Australia's yearly budget passed with minimal excitement from the market, since its deficit and economic predictions were well within expectations.

However, the budget included a significant increase in expenditure and tax cuts for this year and next, most likely with an eye toward the May elections.

“This increases demand at a time when the economy is already robust,” said Hayden Dimes, an ANZ markets economist. “When the RBA begins to increase, we anticipate it to do so with gusto, with the cash rate reaching 2% by the end of 2023.”

Markets already predict that rates will reach 2.0 percent by the beginning of 2023, with no less than seven rises scheduled for this year. (Wayne Cole contributed reporting, and Richard Pullin edited the piece.)