Australia, NZ dollars find some support, trend still down

SYDNEY: The Australian and New Zealand dollars steadied above multi-month lows on Wednesday as a global bond selloff paused overnight, helping risk sentiment in the absence of local data.

The Aussie was flat at $0.6982, having edged up 0.2% overnight and further away from the recent 13-week trough of $0.6904.

A break above $0.7004 would be needed to stabilise an otherwise bearish technical trend.

The kiwi dollar held at $0.5623, after bouncing 0.4% overnight.

The trend remains down after six straight weeks of losses.

A breach of the 10-month low at $0.5581 would threaten a retreat to $0.5485.

A lull in major data releases has left markets pricing a 25% chance that the Reserve Bank of Australia will raise rates again in November, following last week’s hike to 4.60%.

The next key news will be the minutes of the RBA’s policy meeting, expected on October 13, that are likely to sound hawkish overall given the board voted unanimously to lift rates.

Focus will be on whether board members felt that the hike was enough, their assessment of risk and the likelihood of another move in coming months.

Next week’s September labour data could shift the outlook. All eyes will be on the unemployment rate after it surprisingly rose to a five-year top of 4.6% in August.

Many analysts suspect that increase was largely due to statistical noise and will reverse in September.

A steady or higher outcome would then add to the case against a tightening.

Crucial will be the September-quarter consumer price report due at the end of October, where monthly releases have been pointing to an uncomfortably high 1.0% rise in core inflation. That would leave the annual pace stuck at 3.6%, well above the RBA’s target range of 2% to 3%.

“The RBA cannot forecast inflation returning to the target in the next six months, and therefore would need to tighten policy further to curb inflation expectations,” said Josh Williamson, head of Australian economics at Citi.

“We continue to expect the RBA to hike again by 25 bps in November,” he added. “A terminal of 4.85% remains our base case, with risks to a delayed hike.”