SYDNEY: The Australian and New Zealand dollars were ending the week in the red on Friday as the outlook for interest rates at home shifted against them, while mixed data from China offered limited support.
Activity in China’s service sector did pick up in February, but manufacturing remained in the doldrums and weighed on prices for Australia’s commodity exports including iron ore.
The Aussie was flat at $0.6500, down 1% on the week and well away from last week’s top of $0.6595.
Support lies at $0.6487 ahead of a major low at $0.6443. The kiwi dollar was looking vulnerable at $0.6084, having shed 1.8% for the week so far.
It has support at the 200-day moving average of $0.6075 and around $0.6040/50.
The currency was still suffering fallout from the Reserve Bank of New Zealand’s (RBNZ) decision on Wednesday to trim its projected peak for rates, which led markets to sharply scale back the risk of a further hike.
Policymakers have since emphasised that monetary policy will have to stay restrictive for some time to come, so a first rate cut is not seen as likely until October at the earliest.
“The past week’s decline in NZD/USD has been deeper than expected, mainly due to the dovish RBNZ surprise, indicating potential to test the early-Feb low of $0.6040 during the next few days,” said analysts at Westpac.
Australia, NZ dollars unloved as markets say goodbye to rate hikes
“Markets will now probably feel emboldened to resume speculation on rate cuts, such that the 2yr swap has potential to test 4.80%.”
Two-year swap rates were at 4.963%, having fallen 26 basis points since the RBNZ statement.
In Australia, a benign inflation report this week reinforced expectations the Reserve Bank of Australia (RBA) was done hiking rates and the next move would be down, albeit not until August at the earliest.
The next test for the rate outlook will be data on gross domestic product (GDP) due on March 6, which analysts suspect will show the economy hardly grew in the December quarter, and might even have contracted.
“We expect real GDP increased by a small 0.2%/qtr which would take the annual rate down to 1.4%,” said Gareth Aird, head of Australian economics at CBA.
“Against strong growth in population, it should confirm that the per-capita recession continued.”
“A substantial downside surprise could be the catalyst for the RBA to jettison its hiking bias at the March Board meeting,” he added.
The RBA next meets on March 19.
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