Australia, NZ dollars under pressure as commodities slip

SYDNEY: The Australian and New Zealand dollars wallowed near multi-week lows on Thursday as worries about global growth undermined commodity prices, and markets wagered Australia’s central bank was done raising interest rates.

The Aussie was looking unloved at $0.6603, after a hitting a six-week low of $0.6592 overnight.

That left it precariously close to the March trough of $0.6565 and a breach would take it to depths not visited since November.

The kiwi dollar was stuck at $0.6125, having also touched a six-week low at $0.6112.

Support lies at its March trough of $0.6086.

Weakness in iron ore and oil prices weighed on the Aussie, amid wider risk aversion as regional US banks remained under pressure.

Markets are also scaling back the chance of further rises in the 3.6% cash rate from the Reserve Bank of Australia (RBA) after core inflation moderated in the first quarter.

Futures now imply just a 10% chance of a hike at the RBA’s May meeting next week, and only a slightly higher probability of a move by August. Rate cuts are expected from February next year.

Of the four major local banks, CBA and Westpac have been tipping one final hike in May, while ANZ sees the RBA pausing, but with further tightening likely later in the year as service inflation stays high.

Australia, NZ dollars looking vulnerable before inflation test

NAB analysts believe 3.6% will be the peak, though see a risk the RBA board could go for a final May hike.

Goldman Sachs also sees no hike next week, but expects increases in July and August as wages keep rising and booming migration fuels a rebound in the housing market.

The indecision in part reflects hawkish-sounding minutes of the RBA board’s April meeting that showed members were worried inflation would not decrease quickly enough to prevent a price-wage spiral.

“The debate around the cash rate appears to have morphed from whether inflation has peaked to the forward pace of decline, and how long it will take for inflation to return to inside the 2% to 3% target band,” said Nomura economist Andrew Ticehurst.

“Accordingly, we believe that the probability of a 25bp hike next week is greater than that currently implied by the market, but is still below 50% in our view.”