SYDNEY: The Australian and New Zealand dollars were holding their ground on Thursday as market hopes for some cooling in the US-China trade war supported risk assets, at the expense of the euro and the yen.
Trading was again very volatile as White House policy seemed to change by the hour, while President Donald Trump said lower tariffs depended on China being willing to talk.
The never-ending flow of headlines put the Aussie back at $0.6360, after rising as high as $0.6435 at one stage overnight, though it did make gains of 0.8% on the euro and the yen.
Resistance at $0.6435/40 has now held for three straight sessions, suggesting a fresh buying catalyst will be needed to breach it.
The kiwi dollar steadied at $0.5949, having backed away from a five-month top of $0.6029 hit early in the week.
Support comes in around $0.5912 and $0.5850. Domestic economic news has been thin on the ground but will pick up next week with Australian consumer prices for the first quarter, a release that could well decide whether the Reserve Bank of Australia cuts interest rates in May.
Analysts generally look for the CPI to rise 0.8% in the quarter, nudging the annual pace down to 2.3% from 2.4%.
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The key trimmed mean measure of core inflation is seen rising 0.6% in the quarter, with annual inflation slowing to 2.8% from 3.2%.
That would take the core back into the RBA’s 2% to 3% target band for the first time since late 2021 and a long way from the 6.8% peak hit in 2022. It would also mean the six-month annualised pace of core inflation was just 2.2%.
Stephen Wu, a senior economist at CBA, noted there was a risk the core rate could come out at 0.7%, in part because a lot of government-set price increases are enacted in the first quarter of the year and can bias inflation higher.
The RBA itself has projected a 0.7% increase.
“We think a 25 bp rate cut in May is still more likely than not if the trimmed mean prints in line with the RBA’s forecast,” said Wu.
“If the trimmed mean is in line with our forecast of 0.6%, then we consider a rate cut in May is a done deal.”
Markets are already fully priced for a quarter-point cut to 3.85% and see rates around 3.0% by the end of the year.
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