Key points:

Australian and New Zealand dollars slip ahead of Fed meeting and U.S. inflation data.
Support for Aussie dollar at $0.6580 and kiwi dollar at $0.6080.

The Australian and New Zealand dollars faced pressure on Tuesday as traders prepared for the Federal Reserve policy meeting and U.S. inflation data. Bond markets lengthened the odds of early rate cuts at home, adding to the cautious sentiment.

Aussie dollar dips on weak Chinese Yuan

The chart displays the AUD/USD currency pair (symbol: AUDUSD) on a 1-hour timeframe, with a trend increase of 0.02%. The chart features an open price of 0.66051, a close price of 0.66061, a high of 0.66124, and a low of 0.65911. Technical indicators such as moving averages (MA) and the MACD (26,16,9) are included. The Australian dollar has slipped 0.3% to $0.6592, recovering some losses from a 1.3% drop on Friday. This movement is influenced by a weak Chinese yuan hitting a seven-month low, which also weighed on the Aussie. Support for the Aussie is now at Friday's low of $0.6580.

Picture: Aussie slumps as seen on the VT Markets app.

The Australian dollar (AUDUSD) slipped 0.3% to $0.6592, having rallied 0.4% overnight to reach $0.6611, recovering some of the losses from a 1.3% drop on Friday. A weak Chinese yuan, hitting a seven-month low, also weighed on the Aussie. Support for the Aussie now stands at Friday’s low of $0.6580.

The chart shows the NZD/USD currency pair (symbol: NZDUSD) on a 1-hour timeframe with a trend increase of 0.03%. It features an open price of 0.61245, a close price of 0.61266, a high of 0.61326, and a low of 0.61177. The chart includes technical indicators such as moving averages (MA) and the MACD (26,16,9). The New Zealand dollar fell 0.1% to $0.6122, after rising 0.4% overnight to as high as $0.6128, trimming some of Friday's 1.6% loss. Support for the kiwi dollar is around $0.6080.

Picture: Kiwi seen trading at 0.61266 on the VT Markets app.

Similarly, the New Zealand dollar (NZDUSD) fell 0.1% to $0.6122, after rising 0.4% overnight to as high as $0.6128, trimming some of Friday’s 1.6% loss. Support for the kiwi dollar is around $0.6080.

U.S. dollar strengthens on higher yields and jobs data

The U.S. dollar remained strong, supported by higher Treasury yields following robust jobs data at the end of last week. This data sparked a reduction in bets for Fed rate cuts this year. All eyes are now on the Federal Reserve meeting and U.S. inflation report scheduled for Wednesday, which are expected to provide further direction for the currency markets.

Also read: Strong nonfarm payrolls report throws rate cut timeline of the Federal Reserve into question

In Australia, the broader market shift mirrored the U.S. trends, with investors pushing back expectations for the first rate cut from the Reserve Bank of Australia to July 2025. The probability of a rate cut this year has dropped to 32%.

ANZ revised its forecast for the first rate cut to February 2025 from November this year, citing stronger household consumption and government spending supporting growth.

ANZ expects interest rate cuts from February 2025 👇 https://t.co/dsqlVKU00L
— 1News (@1NewsNZ) June 6, 2024

Australian bond yields surge as investors react to market developments

Local bond yields spiked on Tuesday as Australian investors returned from a public holiday. The three-year bond yield rose 6 basis points to 3.977%, while the 10-year bond yield jumped 10 basis points to 4.343% from Friday’s close. This reaction indicates heightened sensitivity to global market developments and local economic data.

Given the current market conditions, cautious trading is expected to continue. The Fed meeting and U.S. inflation data will be critical in shaping short-term currency movements.

For the Australian and New Zealand dollars, support levels will be closely watched, and any deviations from expected economic data could trigger further market adjustments.

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