SYDNEY: The Australian and New Zealand dollars remained hooked to events in the Middle East on Monday as worries about a wider conflict pressured risk sentiment, ahead of an important week for local data and central bank speak.
The Aussie was flat at $0.6314 and uncomfortably close to its recent 11-month trough of $0.6286. Resistance is up at $0.6357 and $0.6394.
The kiwi dollar looked vulnerable at $0.5829, just above its recent low of $0.5816.
Resistance lies around $0.5866. Domestic hurdles lie ahead in the shape of two Reserve Bank of Australia (RBA) events and a crucial reading on third-quarter consumer prices on Wednesday.
RBA Governor Michele Bullock speaks at a conference late on Tuesday and appears before the Senate economics committee on Thursday, where she will no doubt be asked about the policy implications of the CPI report.
Commentary from the bank turned more hawkish last week as the central bank Board emphasised it had a “low tolerance” for any upside surprise on inflation, suggesting a high reading on CPI could trigger a rate hike at the RBA’s Nov. 7 meeting.
The headline CPI and the core trimmed mean measure are both forecast to increase by 1.1% in the quarter, above the RBA’s own predictions mainly because of rising oil prices.
Australia, NZ dollars undone by risk aversion
Analyst estimates range from 0.8% to 1.2% for the core measure.
Economists at Commonwealth Bank look for core inflation to rise 1.0%, which they assume would be consistent with rates staying on hold next month.
“We assess that the risks to our inflation forecast skew to the upside,” they cautioned in a note.
“We are of the view that the November RBA Board meeting is ‘live’ and ascribe a 40% chance of a 25bp rate hike.”
Markets imply around a 30% probability of a rate rise to 4.35%, and are almost fully priced for a move by May next year.
A high inflation reading would add to the pressure on bonds which have been sideswiped by the recent sell off in Treasuries.
Yields on Australian 10-year paper climbed 27 basis points to 4.75% last week, reaching levels not seen since August 2011.
They still managed to outperform US bonds, leaving the 10-year yield 17 basis points below Treasuries.
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