SYDNEY, Feb 22 (Reuters) - The Australian and New Zealand dollars were holding their ground on Tuesday as strength in global commodity prices helped offset some of the investor unease about Russia's incursion into eastern Ukraine.
Both countries are major commodity exporters, with Australia having a major presence in energy through coal and liquefied natural gas.
The Aussie was further aided by gains against the euro which has shed around three cents in the past couple of weeks as tensions escalated to stand at A$1.5716.
Against the U.S. dollar, the Aussie edged up a fraction to $0.7197 in a relatively resilient performance given its usual sensitivity to losses in world equity markets.
Chart support lies at $0.7158 and $0.7100, with resistance around $0.7228 and $0.7250.
The kiwi dollar steadied at $0.6704 , having recovered from an early dip to $0.6680 support. It still faces stiff resistance around $0.6730/35.
Markets were pondering what impact a possible war in Ukraine combined with rising commodity prices might have on the Reserve Bank of New Zealand's policy decision on Wednesday.
The spike in geopolitical uncertainty might argue against an aggressive move, but the ongoing surge in oil prices could underline the need to contain inflationary pressures at home.
Investors assume a quarter-point hike to 1.0% is a done deal and, given high readings for local inflation, have priced in a around a one-in-three risk of a half-point rise.
"A 25bp increase is more likely than a 50bp one, given previous guidance that the tightening cycle would play out in gradual increments," said Imre Speizer, head of NZ strategy at Westpac.
He also expects the RBNZ to lift its projected course for the official cash rate so it peaks at 2.75% or 3.0%, compared to the current 2.5%.
The central bank might also provide more detail on how it will run down the NZ$50 billion in bond holdings amassed during the pandemic-driven quantitative easing (QE) programme, likely favouring a passive stance.
"RBNZ officials have so far indicated a preference for a smooth and orderly exit from QE, which doesn't affect the market," he added. "Actively selling QE-related bonds before maturity would be tantamount to monetary policy tightening."
The Reserve Bank of Australia (RBA) on Tuesday announced a shake up of its market operations as it prepares for eventual rate rises and a contracting balance sheet.
Editing by Shri Navaratnam
Source: Reuters