SYDNEY: The Australian dollar pared some of its recent hefty losses on Tuesday after the country’s central bank held rates steady as expected but warned a further hike could not be ruled out given inflation was still too high.
The Reserve Bank of Australia (RBA) kept its cash rate at a 12-year high of 4.35% for a second meeting and noted inflation had eased a little faster than expected in the fourth quarter.
However, it was not yet confident inflation would return to its 2-3% target in a timely manner and thus reserved the right to tighten again if necessary.
“A slightly more hawkish set of comments than anticipated, particularly after the weakness in recent inflation data,” said Dwyfor Evans, head of APAC macro strategy at State Street Global Markets.
“We continue to focus on weaker consumption, elevated debt servicing costs and signs of easing in the job market as pointers towards a more accommodative stance going forward.”
That statement helped the Aussie nudge up 0.2% to $0.6498 , having hit an 11-week low of $0.6469 overnight as the US dollar got a broad lift from an upbeat survey on the service sector. Support now lies around $0.6450.
The kiwi dollar stood at $0.6060, after touching a 10-week trough at $0.6040 the previous session.
Australia, NZ dollars back from the brink as risk rallies
The next major support level is down around $0.6000. Both currencies have crumbled in the face of strong US economic news and hawkish commentary from the Federal Reserve, which has seen markets scale back bets on early rate cuts there.
The RBA’s rate warning reinforced the shift and saw futures push out the likely timing of a first easing to later in the year.
A move in June was now put at a probability of 36%, with August at 76%.
A quarter point cut was not fully priced in until September.
They also imply only a modest 40 basis points for the year, down from 46 basis points before the RBA announcement.
The Reserve Bank of New Zealand (RBNZ) is priced to cut its 5.5% cash rate in July, with May a 50% probability. The market has around 87 basis points of easing pencilled in for all of 2024.
The hawkish shift has taken a heavy toll on bonds, with Australian three-year debt futures retreating to 96.320 from an eight-month top of 96.540 hit last week.
New Zealand two-year swap rates were up at 4.860% having surged 18 basis points on Monday.
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