Australia, NZ dollars get a reprieve as China eases rates, support shaky

SYDNEY: The Australian and New Zealand dollars got a much needed lift on Tuesday as a surprise policy easing in China revived hopes that meaningful stimulus was on the way, even as data from the Asian giant proved worryingly weak.

The cuts in key rates helped offset dismal readings on China’s retail sales and industrial output, though markets would really like to see Beijing use fiscal spending to get demand going.

China is the main export market for Australia and New Zealand and a major driver of prices for their resources.

The rate cut was enough to help the Aussie bounce 0.3% to $0.6504 and away from a nine-month low of $0.6454, though a move above $0.6560 is needed to put it on steadier ground.

The kiwi inched up to $0.5986 and off another nine-month trough at $0.5944, but faces resistance above $0.5990.

Not helping the Aussie was domestic data showing wage growth slowed unexpectedly to 3.6% in the June quarter, soothing fears of an imminent price-wage spiral.

Analysts expect a stronger reading for this quarter, but those figures are not due until mid-November and possibly too late to affect the Reserve Bank of Australia’s (RBA) thinking on interest rates.

Minutes of the central bank’s August policy meeting out on Tuesday hinted that it might be done hiking as the board thought it “credible” that inflation would subside with rates as they were.

“From here the window is narrowing to what data flow could force another rate hike, given we expect the activity side of the economy to weaken,” said Belinda Allen, a senior economist at CBA. Third-quarter inflation figures are due on Oct. 25 and the wages report on Nov. 15.

“At this stage, we do not see these printing above expectations and forcing the RBA to lift the cash rate again,” said Allen. Markets have split the difference and imply around a 50-50 chance of one more hike by year end.

Australia, NZ dollars plumb nine-month lows on China woes

The Reserve Bank of New Zealand (RBNZ) holds its next meeting on Wednesday and is considered certain to keep rates at 5.5%. An RBNZ survey of households out on Tuesday showed past hikes were working as intended, with expected inflation two years ahead falling to 3% from 5.0%.

“We expect that the RBNZ will keep rates on hold and reiterate their intention to remain on hold for an extended period,” said Satish Ranchhod, a senior economist at Westpac.

“Today’s data was a tick in favour of a more ‘dovish’ policy statement.”