Australia, NZ dollars steady, market scales back RBA easing

SYDNEY: The Australian and New Zealand dollars steadied on Thursday as a rally in their US counterpart petered out and investors scaled back expectations for Aussie rate cuts in the wake of a high inflation reading.

Markets had already seen scant prospect of the Reserve Bank of Australia easing at a policy meeting next week but have now also trimmed the chance of a November cut to 40%, from 70% a couple of days before.

Details in the August consumer price report were taken as pointing to upside risks for third-quarter inflation, even though the RBA has played down the relevance of the data series.

Analysts were queuing up to sound more hawkish, with NAB, Macquarie, Citi, Nomura and TD Securities all abandoning calls for a November easing. CBA, Westpac, ANZ and Goldman Sachs retained a November cut but with plenty of caveats.

“The CPI indicates material upside risks to Q3 inflation and a cyclical upswing in the activity data is also clear, but there are signs of softer employment and moderating wages growth,” noted Belinda Allen, head of Australian economics at CBA.

“We continue to expect one last 25bp rate cut in November, but it is by no means guaranteed and will be highly dependent on the data flow from here.”

The Aussie edged up 0.1% to $0.6590, after easing 0.3% overnight and away from a top of $0.6628.

That leaves the focus on support around $0.6575. The kiwi dollar was lagging badly at $0.5813, having slid 0.8% overnight to a one-month low at $0.5807.

A break of August’ s trough at $0.5800 would be very bearish technically, with the next target at $0.5730.

The kiwi hit a three-year low on the Aussie at A$0.8810 as a run of dismal data from New Zealand has seen markets price in deeper rate cuts there.

Markets are fully priced for a quarter-point rate cut to 2.75% from the Reserve Bank of New Zealand next month, and a 30% risk it may even ease by 50 basis points.

Rates could now bottom at 2.25% given the need for aggressive stimulus.

“We expect continued downwards pressure to weigh on the cross towards A$0.8700 as markets fully price in 75bps of easing from the RBNZ to come,” analysts at Kiwibank wrote in a note. “Even more so if a move below 2% is required.”