Australia, NZ dollars up for week, diverging rate outlook favours Aussie

SYDNEY: The Australian and New Zealand dollars clung to weekly gains on Friday as economic uncertainty hindered their US counterpart, while the outlook for interest rates at home continued to diverge markedly.

The Aussie held at $0.6600, having found support at $0.6577 overnight.

It was up 0.8% for the week and near the middle of its recent $0.6521 to $0.6707 range.

The kiwi dollar was steady at $0.5820, having rallied 0.7% for the week and away from a six-month trough of $0.5755.

The kiwi was aided by profit-taking on short positions against the Aussie, which had risen for eight straight weeks to hit a three-year peak of NZ$1.1416 before easing back to NZ$1.1336.

The Aussie’s ascent came as the Reserve Bank of Australia turned more hawkish on policy, warning inflation was running hotter than expected.

Futures now imply around a 45% chance of a quarter-point cut in the 3.60% cash rate when the RBA next meets on November 4, compared to nearly 100% a month ago.

ANZ on Friday became the latest of the major local banks to give up on a November easing, while forecasting the trimmed mean measure of core inflation was likely to rise by a hefty 0.9% in the third quarter.

The data are out at the end of this month and the RBA had been looking for a rise of around 0.6%.

“As a result, we no longer expect a rate cut from the RBA in November,” said ANZ senior economist Adelaide Timbrell.

“We remain of the view that a final easing to 3.35% is more likely than not, although the most likely scenarios are one or no cuts, instead of one versus two or more.”

“We now forecast the next rate cut to occur in February, which would seem the first plausible month for easing.”

In contrast, a run of dismal economic news has seen markets price in a 44% chance the Reserve Bank of New Zealand will cut its 3.0% cash rate by an outsized 50 basis points when it meets next week.

“The New Zealand economy contracted at an around a 4% annualised pace in the second quarter, house prices continue to fall and we expect the RBNZ to cut rates by 50bp when it meets next Wednesday,” said Andrew Boak, an economist at Goldman Sachs.