SYDNEY: The Australian and New Zealand dollars were pinned near multi-month lows on Tuesday as investors counted down to key local inflation data and a trio of central bank meetings abroad that are certain to generate market waves.
The Aussie dipped to $0.6535, just above last week’s three-month trough of $0.65105. Support lies around $0.6455, with resistance at $0.6595.
The kiwi dollar looked vulnerable at $0.5870, after coming within a whisker of its April low of $0.5853 overnight. A break there, would target a trough from October 2023 at $0.5774.
Markets are braced for a crucial report on Australian inflation due Wednesday that could make or break the case for another hike in interest rates from the Reserve Bank of Australia (RBA).
Forecasts are for a 1.0% rise in both headline consumer prices and core inflation in the second quarter, which would see annual CPI nudge up to 3.8% and leave core inflation at 4.0%.
That would be uncomfortably far above the RBA’s target band of 2-3% and could make for a close decision at the central bank’s next policy meeting on Aug. 6. Harry Ottley, an economist at CBA, is looking for core inflation to rise 0.9% in the quarter and 3.9% for the year.
“In our view this would give the RBA enough breathing room to leave rates on hold,” he argued.
“We see a print of 1.0% qtr to be in the “grey zone” where they could hold or could hike depending on the component details,” he added.
“A print of 1.1% qtr or above would test the Board’s resolve and shift the balance of probabilities to an increase.”
The market implies only a 22% chance of a quarter-point rate hike next week, but also sees little chance of a cut until next April at the earliest.
Australia, NZ dollars set for biggest two-week drop
That outlook contrasts with the Federal Reserve which is expected to lay the groundwork for a September easing at its policy meeting on Wednesday.
The Bank of England meets Thursday and futures suggest a rate cut will be a 50-50 call.
Going the other way, the Bank of Japan might well tighten policy on Wednesday in part to help arrest a decline in the yen.
The Reserve Bank of New Zealand meets on Aug. 14 and swaps suggest a 40% chance it will cut rates given recent softness in inflation and labour data.
A first easing is fully priced in for October and is one reason the kiwi has been struggling.
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