SYDNEY: The Australian and New Zealand dollars stepped back on Tuesday as China data disappointed and the Bank of Japan tweaked its super-easy policy rather than abandoning it, which proved mainly of benefit to the US dollar.
The Aussie eased 0.4% to $0.6346, having bounced 0.6% on Monday as global risk sentiment improved a little.
It now faces resistance at $0.6400 and $0.6445.
The kiwi dollar dipped to $0.5827, after also rallying 0.6% the previous session.
Resistance lies at $0.5872. Both were caught in cross currents after the BOJ said it was making its yield curve control (YCC) policy more flexible by setting 1.0% as the reference rate for 10-year JGBs, rather than a cap.
The moves were seen as another step toward policy tightening but not as dramatic as some had wagered on, triggering short covering in the US dollar against the yen.
“This means that Yield Curve Control is now de facto over, but it remains to be seen how rapidly the BOJ will slow its bond purchases,” said Marcel Thieliant, head of Asia Pacific economics at Capital Economics.
“We think policymakers will call time on negative interest rates as soon as January, though the risks are tilted towards a slightly later date.”
The Reserve Bank of Australia (RBA) is also under pressure to tighten further as inflation stays stubbornly high and consumers prove more resilient than policy makers had expected.
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Markets now imply around a 60% chance the RBA will hike its 4.1% cash rate by a quarter point on Nov. 7, which would end four months of steady decisions.
Investors see far less risk of a further hike from the Reserve Bank of New Zealand (RBNZ) given rates are already up at 5.5% and inflation surprised on the downside last quarter.
Yet a business survey out on Tuesday pointed to sign of life in the economy as confidence surged, partly in reaction to the victory of a centre-right party in national elections.
“The question becomes whether firms will follow through on these more robust intentions or not,” said analysts at ANZ.
“We will have to wait and see what actually happens to investment, employment, activity etc.”
Key data on employment are due on Wednesday with forecasts centred on jobs growth of 0.4% in the third quarter, down from a surprisingly strong 1.0% in the previous quarter.
The unemployment rate is also seen rising to 3.9%, from 3.6%, which would tend to reaffirm the market’s outlook for steady policy.
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