SYDNEY: The Australian and New Zealand dollars were on the defensive on Monday ahead of a reading on inflation which could well decide if Australian interest rates rise again, or have already peaked.
The Aussie stood at $0.6693, having shed 0.7% on Friday to as low as $0.6678.
It faces resistance at $0.6750, while major support lies at $0.6620.
The kiwi dollar lapsed to $0.6143, after losing 0.6% on Friday.
Support lies at the March low of $0.6085. Both lost ground in the wake of upbeat business surveys in the United States and Europe, while a sharp fall in iron ore prices put extra pressure on the Aussie.
Markets are nervously awaiting Australian consumer price data for the first quarter on Wednesday where any upside surprise would greatly add to the risk of the Reserve Bank of Australia (RBA) resuming rate hikes in May.
Median forecasts are for headline inflation to slow to 6.9%, from 7.8% the previous quarter, but for core inflation to stay stickier at 6.7%.
Analysts at Goldman Sachs warned inflation might not recede as much as hoped this year in part due to a steep rise in migration which is adding to demand and pushing rents up sharply.
“We estimate that net overseas migration is currently tracking at an annualised flow of around 520,000 people, or 2% of the population, which is around double the average pace in the years prior to COVID,” said Goldman economist Andrew Boak.
“While there are a range of uncertainties around the outlook for rates and inflation, this dynamic supports our view that the RBA will need to resume hiking rates over the coming months to keep inflation on a sufficient downward trajectory.”
Australia, NZ dollars keep rally alive before inflation test
He is tipping quarter-point hikes in July and August, in marked contrast to the market which is pricing only a 50-50 chance of one more move.
Futures imply more chance of one more hike from the Reserve Bank of New Zealand (RBNZ) but that is expected to be the peak for rates given last week’s downside surprise in inflation.
“Inflation looks like it has peaked already, well ahead of the RBNZ’s forecast and we should see the final RBNZ rate hike in May,” said Jarrod Kerr, chief economist at Kiwibank.
“We stick to our call that the move beyond 5% is going to be a step too far and we expect to see a material contraction in economic activity,” he added. “We’ve also pencilled in the first rate cut to be delivered in November.”
Comments
Comments are closed.