SYDNEY: The Australian dollar was taking a breather on Monday after last week’s steep climb, as risk sentiment improved globally and markets braced for a possible hike in interest rates at home.
The Aussie was flat at $0.6512, having surged 2.8% last week in its best weekly performance so far this year.
Resistance now lies just above $0.6520 with the next major bull target at the 200-day moving average of $0.6619. The kiwi dollar likewise held at $0.5986, after spiking 3.3% last week to shatter resistance around $0.5939.
It faces resistance at its October top of $0.6056. Both currencies had rallied after a benign US jobs report led markets to price in rate cuts there by the middle of next year, boosting bond and commodities.
Speculation is swirling that the Reserve Bank of Australia (RBA) could end a four-month pause and raise rates at a board meeting on Tuesday.
With inflation proving stubbornly resistant to past hikes, the vast majority of analysts in a Reuters poll expect a quarter-point rise to 4.35%, which would be the 13th move since the central bank started tightening in May last year.
Markets are not quite as confident, in part because most other developed world central banks are seen firmly on hold. Futures imply around a 58% chance of a hike this week, but are fully priced for a rise by February and even see some risk of a further move to 4.6%.
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Nomura economist Andrew Ticehurst has tipped a November hike for some time and assumes the RBA would also retain a tightening bias if it does act.
“We think a final hike might come in December or February 2024 at the latest; beyond this point, we expect more signs of economic cooling to have become apparent,” he added.
“We also see three rate cuts from May 2024, which we think would return the cash rate to a roughly neutral 3.60% by late 2024.”
That outlook is a lot more dovish than the market, which has no cuts at all priced in for next year even as the Federal Reserve is expected to ease by more than 100 basis points.
Investors also see almost no chance of a further hike from the Reserve Bank of New Zealand (RBNZ) following a run of softer inflation and jobs data, and the prospect of a first cut late in 2024.
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