Australia, NZ dollars position for uncertain RBNZ outcome
- The Aussie held at $0.6953, having edged up 0.2% overnight in its third straight session of modest gains
SYDNEY: The Australian dollar was trying to extend its recent slow-motion rally on Tuesday, supported by flows out of the yen, while the New Zealand dollar remained hostage to a looming decision on interest rates at home.
The Aussie held at $0.6953, having edged up 0.2% overnight in its third straight session of modest gains.
Support comes in at the recent three-month low of $0.6866, while a band of resistance lies at $0.6980/0.7000.
It made the most of broad-based weakness in Japan’s currency, rising 0.6% overnight to reach a 10-day top at 112.80 yen.
The kiwi dollar was flat at $0.5702, after easing 0.1% overnight.
It faces near-term resistance at $0.5726, with support around $0.5627.
The kiwi also lost ground to the Aussie as investors positioned for the Reserve Bank of New Zealand’s rate decision on Wednesday, which could see the first hike since mid-2023.
Markets imply a 78% chance of a quarter-point rise in the 2.25% official cash rate and a majority of analysts polled also tip an increase.
However, progress in the US-Iran peace talks and the resulting tumble in oil prices could offer reason for policy makers to delay a tightening.
Imre Speizer, head of strategy at Westpac, thinks the RBNZ will retain its bias to tighten but wait until September to actually move.
Such an outcome could see swap rates fall 8 basis points and pressure the kiwi.
“Our dovish scenario is one where the OCR is unchanged, and the RBNZ expresses patience awaiting evidence of war-related persistent inflation effects,” Speizer said, projecting that would likely see swaps down 16 basis points and knock half a cent off the kiwi.
“A hawkish scenario is one where the OCR is hiked by 25bp, and guidance is as hawkish as it was in May.
The 2yr swap rate could rise by 12bp in response, NZD/USD up by over 60 pips.“
The Reserve Bank of Australia next meets in August and is considered almost certain to hold at 4.35% having already hiked three times this year. Markets have steadily pared back the chance of any more moves as oil prices kept falling, with a November rise considered the most likely at just 40%.
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