Australia dlr in doldrums, kiwi climbs on RBNZ rate risk

SYDNEY: The Australian dollar was heading toward a fourth straight week of losses on Friday as concerns about China’s economy provided an excuse to sell, while its New Zealand counterpart bounced on talk rates there might yet rise again.

The Aussie was stuck at $0.6490, having eased 0.3% for the week so far and touched a three-month low of $0.6469. All attempts at rallying have been thwarted by resistance around $0.6540, leaving risks to the downside.

The kiwi dollar was faring better at $0.6125, to be up almost 1% on the week and some way above an 11-week trough of $0.6040.

The kiwi has been aided by a marked shift in marked pricing for interest rates fuelled in part by a surprisingly firm set of local jobs data.

That combined with a global move to push out the timing of rate cuts in the United States and Europe, and a hawkish change of view from a local bank.

Analysts at ANZ on Friday said they now expected the RBNZ to raise rates by a quarter point in both February and April, taking them to 6.0%. They cited stickiness in domestic inflation and falls in market rates which had seen banks trim their rates on fixed mortgages.

“We just don’t think the RBNZ Committee will feel confident that they’ve done enough to meet their inflation mandate,” said Sharon Zollner, chief economist for New Zealand at ANZ.

“We see the risks as balanced around our updated forecasts. February is a line-ball call, and if they don’t hike in February, we think they will in April unless we start to see meaningful downside surprises.”

The next policy meeting is on Feb. 28 and markets have shifted to imply around a 38% chance of a hike then, compared to almost no chance of a move a week ago.

Swaps have also swung sharply from pricing in rate cuts, to imply around 20 basis points of hikes by May.

The two-year swap rate hit a two-month top of 5.135% on Friday, having climbed 43 basis points over the week.

The Reserve Bank of Australia (RBA) has also been warning that rates might have to rise again if inflation proves stubborn, but markets seriously doubt it will happen.