SYDNEY: The Australian dollar held near six-week highs on Thursday as speculation about an eventual slowdown in the pace of US rate hikes boosted risk sentiment and helped the currency break a major chart barrier.
The Aussie stood at $0.6992, having rallied 0.8% overnight and through resistance around $0.6985.
The next retracement target is in the $0.7057/7069 zone. The New Zealand dollar lagged a little at $0.6274, after rising 0.5% overnight and has yet to clear its July top of $0.6305.
The Aussie got an extra lift from more reports that Beijing planned to support the country’s ailing property market through low-cost loans.
The main gains came after the US Federal Reserve raised rates as expected but dropped forward guidance on policy indicating future moves would depend more on the flow of data. Domestic data out.
Australian dollar slips, bonds rally as inflation fails to shock
Thursday were mixed with retail sales slowing in June after a very strong run, but export prices booming on the back of gains in coal and gas.
The latter allowed the Australian government to foreshadow a sharp improvement in its budget deficit, even as it trimmed the outlook for economic growth and warned of soaring inflation.
Treasury now sees inflation peaking at 7.75% in the fourth quarter, higher even than the 7% recently tipped by the Reserve Bank of Australia (RBA).
The alarming outlook for inflation has all but guaranteed the RBA will hike its 1.35% cash rate by another 50 basis points at a policy meeting next week. Yet the market has scaled back its more hawkish expectations for how much further rates might rise.
December bill futures have rallied 45 ticks in just the past week to reach 96.950. Swaps now imply rates of 3.10% at the end of the year, compared to 3.50% just a week ago.
RBA policy Board has indicated they want to get to at least neutral - seen around 2.5% - in order to restrain inflation expectations.
“The board is motivated mostly by getting back to home base of neutral/moderately restrictive,” said analysts at JPMorgan. “ The main uncertainty near-term is where the board perceives the home base to be.“
“We see sufficient confidence in officials’ recent commentary to bring our near-term 2.6% peak in the cash rate forward slightly to November, from February.”
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