Australia, NZ dollars give ground, RBA sticks to patient stance

SYDNEY: The Australian and New Zealand dollars surrendered some ground on Wednesday amid concerns booming commodity prices would drag on global growth, and Australia’s central bank sounded in no rush to raise rates.

The Aussie lapsed to $0.7273, and further away from the week’s peak of $0.7440. That took it back under the 200-day moving average at $0.7318 and put the near-term focus on support around $0.7245.

The kiwi dollar was left at $0.6805, having recoiled all the way from Monday’s top at $0.6926. Support now lies at $0.6800 and $0.6767.

Both eased on the euro which rallied to A$1.4986 and away from a four-year trough of $1.4554 touched on Monday, though it remains far below the A$1.5900 level held just a couple of weeks ago.

Global commodity prices steadied after their recent surge as investors sought some sense of how long the Russian-Ukraine conflict might last.

Reserve Bank of Australia (RBA) Governor Philip Lowe warned the jump in commodity prices would likely lift inflation further and could feed through to wage claims.

Yet he also emphasised that the RBA had scope to be patient on hiking interest rates, and it was plausible a move would come later this year.

Westpac’s latest consumer survey showed inflation and Ukraine had hurt sentiment this month, though bank data on card spending stayed strong.

Markets are wagering a first hike to 0.25% could come as early as June should the consumer price report for the first quarter be as strong as analysts now expect.

Among the major local banks the difference in timing has narrowed to a few months, with CBA tipping a first rise in June, Westpac and NAB in August and ANZ picking September.

Futures are pricing in a string of hikes to 2.0% by May next year, while swaps imply a top for the cycle at 1.75-2.0%. The RBA’s Lowe has said he wanted to see real rates turn positive which would imply a cash rate above 2.5%.

CBA economist Stephen Wu thinks the peak could be as low as 1.25%, in part because Australian households hold record amounts of debt and rising mortgage bills will hit hard.

“A lower, likely negative, real neutral rate means it is likely this tightening cycle will be shallow,” he argued. “We expect the RBA to lift the cash rate to 1.25% by Q1 2023 and hold it there over the rest of our forecast horizon which extends to end-2023.”