SINGAPORE: The Australian and New Zealand dollars were on track for their strongest weekly gains of the year on Friday, riding a pickup in risk sentiment after softer US economic data hosed down expectations of faster interest rate hikes.
The Aussie was last down 0.14% to $0.7095, having hit a two-month high of $0.7136 overnight. It is up 2.65% for the week.
Meanwhile, the kiwi extended gains and was up 0.05% to $0.6431, after similarly touching a fresh two-month peak of $0.64625 overnight. It is up nearly 3% for the week.
US data overnight offered signs inflation could be moderating, as producer prices unexpectedly fell in July amid a drop in the cost for energy products, while jobless claims rose for a second straight week.
The producer price index figures came on the back of lower-than-expected US inflation print a day earlier, causing markets to pour back into risk assets.
“The recovery in the Aussie and the kiwi is really being driven by a weaker US dollar … I do expect the US dollar to recover as markets adjust higher their expectations for the FOMC, so that means the recovery in Aussie and kiwi dollar is unlikely to be sustained,” said Carol Kong, senior associate for currency strategy and international economics at Commonwealth Bank of Australia.
“Risks to both currencies are still to the downside … the global economic outlook is deteriorating.”
Australia, NZ dollars hold gains, data offers mixed message
Expectations of a less hawkish Fed in September in turn led investors to pare back the odds of more aggressive tightening in Australia, with markets now pricing in just a 38.8% chance of a half point hike from the Reserve Bank of Australia (RBA) next month.
The country’s second quarter wage price index next week will be key for the RBA’s near-term policy deliberations, said economists at ANZ.
“The Q2 Wage Price Index (WPI) is unlikely to show a sharp acceleration from Q1,” ANZ said. “It will be the Q3 report that will reveal recent developments – not least the lift in minimum and award wages. For this reason there will be much more information content in the WPI if it did accelerate meaningfully in Q2.”
In New Zealand, food prices - which make up nearly 19% of the consumer price index - rose 2.1% in July, data from Statistics New Zealand showed on Friday.
Markets are fully priced for the Reserve Bank of New Zealand to raise rates 50 basis points to 3% next week, with a 11.5% chance of 75 bps.