Australia dollar hesitates, market divided on size of RBA hike

SYDNEY: The Australian and New Zealand dollars were marking time on Monday, with investors split on whether Australia’s central bank will hike interest rates by a “usual” quarter point this week or opt for something more dramatic.

The Aussie steadied at $0.7203, having been as high as $0.7282 on Friday before an upbeat US jobs report boosted the US dollar. Major resistance lies at the 200-day moving average of $0.7259, with support around $0.7187 and $0.7140.

The kiwi was likewise back at $0.6500, having got as far as $0.6576 on Friday.

Resistance stands at $0.6567 and support at $0.6460. For the Aussie, much depends on whether the Reserve Bank of Australia (RBA) chooses to raise the 0.35% cash rate by 25 basis points or more at its policy meeting on Tuesday.

Of the 35 analysts polled by Reuters, 22 looked for a quarter point move, while 11 tipped 40 basis points, one went for 50 basis points and one for no hike at all.

Of the four major local banks, ANZ and Westpac favour 40 basis points, while CBA and NAB see 25 basis points.

Markets are taking an each-way bet with around 31 basis points of tightening priced in, but still have rates climbing all the way to 2.75% by year-end.

The RBA has not lifted rates by more than 25 basis points since 2000, but the Board did consider 40 basis points in May so it would not be a complete surprise.

“By returning the cash rate to 0.75%, the RBA would be completing an unwind of the emergency rate cuts it delivered in 2020,” said Andrew Ticehurst, an economist at Nomura.

“This would fit with a narrative that the emergency has passed, and might be a relatively easy message to convey.”

Aussie dollar higher with hike bets; kiwi gains

“We have a positive view on the AUD based on our assessment of domestic fundamentals – strong local growth momentum, an RBA set to become more hawkish, consistent trade and current account surpluses and elevated bulk commodity prices.”

The bond market has also priced for a more hawkish RBA with three-year yields up at 3.11%, having climbed 23 basis points last week.

The jump in yields has given the Aussie a leg up on the Japanese yen where 10-year yields are being held near zero, with the Aussie surging 3.6% last week to as high as 94.56.