Australia, NZ dollars climb as oil slide eases rate concerns

SYDNEY: The Australian and New Zealand dollars strengthened on Monday as hopes for a diplomatic solution to the Middle East conflict sent oil prices lower, easing inflation concerns and boosting global bond markets.

The Aussie rose 0.2% to $0.7001, after gaining 0.3% on Friday, leaving it little changed for last week.

It has continued to move away from a three-month low of $0.6867, with resistance seen at the one-month peak of $0.7026.

The New Zealand dollar added 0.2% to $0.5798 after ending last week down 1%, weighed mainly by losses against its Australian counterpart. Resistance is now seen at the 200-day moving average of $0.5822. Against the kiwi, the Aussie was up 0.1% at NZ$1.2068, after rallying 1% last week.

The gains were supported by a stronger-than-expected jobs report that led markets to almost fully price in a fourth interest-rate increase from the Reserve Bank of Australia this year.

Investor focus will shift to quarterly inflation data, due on Wednesday, where economists expect the trimmed mean measure of core inflation to rise 0.9% in the second quarter, lifting the annual rate to 3.7%.

That would remain above the RBA’s 2%-3% target band, but below the central bank’s forecast of 3.8%.

“Assuming no significant upside surprise to core inflation this week the RBA should be able to hold steady in August,” said Paul Bloxham, chief economist at HSBC.

“However, inflation is still too high, and the jobs market is still likely to be deemed to be ‘a little tight’, despite loosening. The board could still judge that more tightening is needed.”

Lower oil prices prompted markets to trim the probability of an RBA rate hike next month to 30% from 40%, while a November increase remains around 80% priced in.

RBA Governor Michele Bullock is due to speak on Tuesday and could strike a hawkish tone given the recent escalation in the Gulf conflict.

Australian government bonds recovered after heavy losses last week.

Three-year bond yields fell 9 basis points to 4.635%, after surging 23 basis points last week, while 10-year yields dropped 7 basis points to 5.015%.

In New Zealand, the key two-year swap rate dropped 6 bps to 3.7219%, after jumping 20 bps last week.

The Reserve Bank of New Zealand raised rates to 2.5% earlier this month and markets now expect to see 3.0% by December, and 3.5% by the middle of next year.