Australian dollar hit by dovish rate shift, sinks to one-month low on kiwi

SYDNEY: The Australian dollar was on track for steep weekly losses on Friday after soft jobs data prompted markets to scale back wagers on a fifth rate hike this year, sending the currency to a one-month low against the New Zealand dollar.

The Aussie slipped 0.1% to $0.6917 after diving 0.7% overnight to a 15-week low of $0.6895.

That broke key support at $0.6904, with bears targeting the June low of $0.6867.

It is now headed for a weekly drop of 0.9%, having fallen more than 4% from a peak of $0.7238 in early September.

The Aussie also retreated from a 13-year top against the kiwi, falling 1.3% overnight to a one-month low of $1.2295 as markets increasingly expected the Reserve Bank of New Zealand to raise interest rates for a third time this year later this month.

Swaps imply an 86% probability that the RBNZ will raise the official cash rate by 25 basis points to 3% on October 28.

RBNZ’s chief economist Paul Conway told Bloomberg News in an interview that the next rate move is “wide open”.

Data showed on Friday that New Zealand’s electronic retail card spending fell 0.4% in September, but separate price data showed higher fuel costs were pushing up the cost of air travel and accommodation, underscoring the inflation challenge.

All eyes are on the third-quarter inflation data next Thursday.

Analysts at ANZ expect annual headline inflation in New Zealand to ease to 3.8% last quarter, but say non-tradable inflation likely picked up to 3.5%.

“Even if those measures remain contained and the Q3 CPI prints close to our forecast, the lower NZD and higher oil prices since September have materially changed the outlook,” said Miles Workman, a senior economist at ANZ.

“In our view, that keeps an October OCR hike firmly on the table.” The kiwi dollar edged up 0.1% to $0.5629, after lifting 0.5% overnight to as high as $0.5634.

It is set for a weekly rise of 0.3% to end a seven-week losing streak.

Across the Tasman Sea, swaps imply a 25% chance that the Reserve Bank of Australia will raise interest rates for a fifth time this year, while a move by December is 42% priced in.

Governor Andrew Hauser speaks next Wednesday, and there is a risk he pushes back against those dovish market expectations if inflation remains sticky.