SYDNEY: The Australian and New Zealand dollars shed some recent gains on Monday after Chinese economic data badly missed forecasts, undermining commodity prices and risk sentiment globally.
The Aussie dipped 0.3% to $0.7098, and away from last week’s two-month high of $0.7136.
Chart support lies around $0.7060. The kiwi dollar eased to $0.6425, again off a two-month top of $0.6468. It has support around $0.6420 and $0.6385.
Figures for Chinese retail sales, industrial output and new bank lending all disappointed, overshadowing a surprise rate cut by the country’s central bank.
That tarnished hopes for a soft landing in the global economy that had seen both resource-rich currencies rally sharply last week.
It was another complication for monetary policy with the Reserve Bank of New Zealand (RBNZ) still widely expected to hike rates by half a point to 3.0% on Wednesday, but maybe temper its projection of a peak around 4%.
Australia, NZ dollars hold gains, data offers mixed message
“We currently expect the RBNZ to hike to 3.5%, and stop,” said Jarrod Kerr, chief economist at Kiwibank. “Although the risk is clearly tilted towards a much higher terminal rate of 4%, or above.”
“We believe the RBNZ is getting significant traction in its tightening to date, and confidence in the economy has been hit, hard,” he added. “We are also wary of the rapidly rising risks of a global recession.” Markets currently imply rates will top out near 4%, though two-year swap rates have eased to 3.95% in recent weeks from June’s high of 4.54%.
The Reserve Bank of Australia (RBA) is also expected to tighten further at its next policy meeting in September, though the market is split on whether it will go by 25 or 50 basis points.
Minutes of the RBA’s August policy meeting due on Tuesday will offer more detail on why it decided to hike by half a point and maybe some guidance on the chance of a similar move next month.
Data on wages and jobs this week are expected to support the case for more tightening with wage growth seen picking up to a near eight-year high of 2.7% and unemployment holding at a 48-year low of 3.5%.
“Wages growth is likely to continue to lag the rapid tightening in the labour market, with further acceleration in coming quarters signalled by leading wages and labour cost indicators and the higher award wages increases in prospect from Q3,” said Taylor Nugent, an economist at NAB.
“We see that as consistent with the RBA moving by 50bp in September before moderating to 25bp increments in October.”