SYDNEY, Dec.10 (Reuters) – The Australian and New Zealand dollars were looking to break a five-week losing streak on Friday as hopes that the Omicron outbreaks would prove manageable prompted them to take profits on overcrowded short positions.

The Aussie has stabilized at $ 0.7145, after advancing 2.1% for the week so far and away from a 13-month low of $ 0.6994 seen a week ago. Stiff resistance is around $ 0.7187, with more at $ 0.7208 and $ 0.7275.

The kiwi remained at $ 0.6798, after rebounding a smaller 0.8%, leaving it uncomfortably close to a low of $ 0.6737 on Tuesday. It is facing resistance at $ 0.6823 and $ 0.6867.

Dealers warned that much of the rally was due to positioning as speculators had gotten very short during the strong downtrend of the past few weeks and were required to make a profit at some point.

Market optimism over Omicron could also change quickly. Investors were focusing on low hospitalization rates as a reason to believe the variant would not derail global growth, but new restrictions in Europe have underscored the potential threat.

Australia and New Zealand have resisted pressure for a return to restrictions, seeking to protect their economic recovery.

Data from New Zealand on Friday showed spending on electronic cards jumped 9.6% in November, suggesting that consumption will lead to a strong economic rebound this quarter.

Third-quarter GDP figures due next week are expected to show a sharp contraction due to lockdowns, with forecasts ranging widely from a 3% to 7% decline from the previous quarter.

It’s quite in the rearview mirror of policymakers, with the Reserve Bank of New Zealand having already hiked rates by 50 basis points to 0.75% and announced more to come.

The market has anticipated increases of a quarter of a point for each of its meetings in February, April and May and rates above 2% by the end of 2022.

“When it comes to interest rate differentials, the RBNZ is way ahead and that should point to a stronger Kiwi dollar,” said Jarrod Kerr, chief economist at Kiwibank.

The country’s terms of trade have also reached record levels thanks to soaring prices for dairy products, its largest export.

Together, this could see the kiwifruit soar to $ 0.7300 next year, Kerr said, although he noted that usual correlations have broken down in recent months.

“Predicting the volatility of the Kiwi currency is fraught with pitfalls,” he warned. “We would expect to see a wide range in the Kiwi between a low of around 63c and a high of 75c.”

Editing by Edwina Gibbs

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