Aussie dollar hits one-month high ahead of CPI, kiwi steady

SINGAPORE: The Australian dollar hit a one-month high on Tuesday ahead of what is expected to be a red-hot inflation reading, while the kiwi found the going tougher against a stubbornly strong greenback even as a survey showed surging prices in New Zealand.

The Aussie gained as much as 0.4% to its highest since late June at $0.6984 in morning trade, adding to Monday’s gains and breaking above its 50-day moving average.

It is up 4.5% since hitting a two-year low of $0.6682 in mid-July.

The New Zealand dollar was steady at $0.6264 and has rallied about 3.6% against the dollar from a mid-July low.

Stronger commodity prices also helped, with signs of iron ore prices finding a floor and coal miners eking out production gains at a time of elevated prices.

Australian dollar gets some reprieve from record trade data

Moves were capped ahead of a US Federal Reserve meeting on Wednesday and ahead of Australian inflation data due on the same day.

Economists forecast that the Reserve Bank of Australia’s underlying “trimmed mean” inflation hit 1.5% last quarter.

“A very strong trimmed CPI, say 1.7%/qtr or more, could encourage the market to price a 75 basis point (interest rate) increase in August, and help the Australian dollar to lift against most currencies,” said Joseph Capurso, head of international economics at Commonwealth Bank of Australia.

He added, however, that worries about a global economic slowdown might make any move above $0.70 shortlived - especially as a big US rate hike is expected on Wednesday.

Futures trade suggests a 75 basis point Federal Reserve hike is baked in, with about 10% chance of a 100 bp hike, while traders expect a 50 bp hike in Australia next week with about a 20% chance of a 75 bp hike.

A Stats NZ index of household living costs, meanwhile, showed a year-on-year rise of 7.4% in the June quarter, the largest rise since the series began in 2008 - adding to the case for the Reserve Bank of New Zealand to stay its course of rate hikes.

“While higher interest rates will be tough for many kiwi households, they should help to slow the relentless rise in prices across the other 90-ish percent of the expenditure basket,” said analysts at ANZ Bank.