Australia dollar edges up on inflation data, RBNZ gets new boss

SYDNEY: The Australian dollar edged higher on Wednesday as a reading on consumer prices just topped forecasts, while core inflation slowed a tick, leading investors to slightly lengthen the odds on further rate cuts.

The New Zealand dollar was little moved by news the country’s new central bank governor would be Anna Breman, currently a top official at Sweden’s Riksbank.

Australia’s data showed consumer prices rose at an annual pace of 3.0% in August, up from 2.8% in July and above market forecasts of 2.9%.

Much of the pick up is due to the phasing out of energy rebates and the trimmed mean measure of core inflation eased to 2.6%, near the mid-point of the Reserve Bank of Australia’s 2% to 3% target range.

Markets had already seen scant chance the RBA would cut the 3.65% cash rate at its next meeting on September 30, assuming it would wait until November when it would have a full reading on third-quarter inflation.

Futures shifted to imply around a 60% chance of a quarter point cut in November, down from 70% before the price data, while three-year bond futures slipped 5 ticks.

“We think quarterly data will give the RBA confirmation that inflation has moderated,” Diana Mousina, deputy chief economist at AMP, said in a note.

“GDP growth is running a little below its potential, which indicates that interest rates are still restrictive.”

“This is why we expect a total of 3 more rate cuts in November, February and May, which would see the cash rate ending at 2.85%.”

The Aussie inched up 0.3% to $0.6618, having barely budged overnight.

Support lies at $0.6575, with resistance around $0.6625 and $0.6660. The kiwi dollar held at $0.5863, after dipping 0.2% the previous session.

It has support at $0.5843 and $0.5800, with resistance at $0.5891 and $0.6007.

The new head of the RBNZ will not take over until December 1, meaning the next two policy meetings in October and November will be under the current Governor Christian Hawkesby.

A run of poor economic data has seen markets fully price in a quarter point cut in New Zealand interest rates to 2.75% in October, with around a 20% chance of an outsized easing to 2.50%.

A further reduction of 25 basis points is expected in November, and it is quite possible the bank’s entire easing cycle will be over by the time Breman takes the helm.