New Zealand dollar bounces after overnight wobble, Aussie drifts sideways

SYDNEY: The New Zealand dollar bounced on Friday after an overnight wobble as market pricing for an imminent rate hike remained firm, while the Aussie drifted sideways after a hawkish central bank week.

The kiwi edged up 0.2% on Friday to $0.5865, having slipped 0.1% overnight to as far as $0.5822 as data showed a sharp drop in one-year inflation expectations.

For the week, it is down 0.4%.

However, investors are still wagering heavily on a September rise in the 2.5% cash rate - about 85% priced - in part because the Reserve Bank of New Zealand has repeatedly flagged the need to make policy less stimulative.

Data showed New Zealand’s manufacturing activity expanded again in July and the RBNZ maintained its loan-to value ratio settings despite persistent weakness in the housing market.

Across the Tasman Sea, the Aussie was flat at $0.7061, having been mostly steady overnight.

For the week, it is down just 0.1%, with support around $0.7022.

The Reserve Bank of Australia held interest rates steady at 4.35% this week for a second time, a decision that was largely as expected.

Governor Michele Bullock, however, said she personally thought interest rates might have to go up again as the Strait of Hormuz remained closed and productivity growth stayed poor.

“Many of these risks sit outside the RBA’s direct control, making the inflation outlook particularly precarious in the near-term,” said Stephen Smith, a partner at Deloitte Access Economics, who still tips a rate hike in November.

“The RBA is walking a narrow path.”

Data on Friday showed another sharp fall in home prices in the June quarter, a sign interest rate hikes were working to slow the economy. The RBA also got appointed a new monetary policy member, Melinda Cilento, who currently heads the Committee for Economic Development of Australia.

Markets are pricing around a 70% chance of one last move to 4.60% by early next year.