Australian dollar gains on euro weakness, kiwi waits for inflation data

SYDNEY: The Australian dollar gained on Monday, helped by flows out of the euro in the wake of rioting across France, while the kiwi awaited key inflation data that could make or break the case for a third rate hike this month.

Economic data from China also surprised on the upside, with the economy growing 4.5% in the third quarter, easing the pressure on policymakers to deliver more aggressive stimulus.

China is Australia’s biggest trading partner and a stronger economy there supports demand for key Australian commodities such as iron ore and copper.

The Aussie rose 0.5% to $0.6978, after falling 0.5% last week to hit a 15-week low of $0.6895.

That helped it break above the seven-day moving average of $0.6961, with near-term resistance around 70 cents.

It was aided by broad weakness in the euro, and moved 0.5% higher to 0.6210 euros.

The currency surged through the 0.62 level after unrest in France weighed on the euro, triggering stop-loss buying and accelerating the move higher.

Analysts at Barclays said they remained bullish on the Australian dollar after some loss in data momentum and wobbles in AI stocks weighed on the currency.

“Australia remains a key beneficiary of the AI commodity supercycle, which is generating a terms-of-trade boost to the economy,” they said in a note to clients.

“The RBA’s recent 25bp hike came across as somewhat dovish due to Governor Bullock’s real-time commentary, but the minutes from that meeting reveal a much more hawkish underlying analytical tilt.”

Christopher Kent, assistant governor of the RBA, said the labour market has become less tight faster than previously thought, after data showed the unemployment rate hit a five-year high of 4.7%, a year earlier than the central bank had expected.

Deputy Governor Andrew Hauser will be speaking on Wednesday.

Markets imply a 30% probability that the RBA will lift rates at its next policy meeting on November 2 to November 3, and a move by December is about 50% priced in.

Across the Tasman Sea, the kiwi also edged 0.1% higher to $0.5659, after gaining 0.7% last week to end a seven-week losing streak.

All eyes are on New Zealand’s quarterly inflation data due on Thursday.

Economists at Kiwibank expect headline inflation to slow a touch to 4% in the third quarter from 4.1% previously.

“We’re more worried about the December quarter, seeing how petrol prices have reached record levels right now,” said Alexandra Turcu, an economist at Kiwibank.

“The RBNZ is wary of non-petrol price rises too. They’re worried about prices increasing on other goods and services because of the petrol and diesel prices … This is likely to shift the needle on the possibility of an October rate hike over a December one.”

Swaps imply an 87% probability that the RBNZ will lift interest rates a third time this year to 3% on October 28, with four rate hikes fully priced by the second half of next year.