The Australian and New Zealand dollars struggled to extend last week's hefty gains on Monday as investors turned cautious ahead of central bank meetings in Australia, New Zealand and Europe this week. A private report pointing to benign inflation in Australia suggested there could be plenty of room for the Reserve Bank of Australia (RBA) to cut interest rates at Tuesday's meeting if it so desired.
The Aussie stood at $1.0210, compared with $1.0214 late in New York on Friday. Last week, it rallied more than 4 percent, with most of the gains coming after major central banks moved to ease a credit squeeze in the global banking system. Data from HSBC showing a slowdown in the services sector of China, Australia's top export market, ensured the Aussie stayed well below from a 3-week peak of $1.0335 set last Wednesday. Support was seen at $1.0200 and $1.0150.
The New Zealand dollar held at $0.7767, having gained around 4 percent last week to peak at $0.7840. "The Reserve Bank of Australia shouldn't have any qualms about cutting rates and thus giving the economy some much-needed momentum," said Craig James, chief economist at CommSec.
New Zealand's central bank reviews policy on Thursday and the volatile global outlook and soft local data should keep rates at record lows. Investors are keen to see if the bank retains any sort of tightening bias. Market pricing implies a flat rate outlook over the coming year, while analysts in Reuters poll looking increasingly at a later start to rate hikes.
"Unless there are shock headlines out of Europe, then I can see the kiwi holding in a reasonably tight band ahead of the RBNZ," said a trader at a local investment bank. Near-term support was found at around $0.7725, with $0.7840 the first line of resistance ahead of a test of $0.7900.