Australian dollar steadies ahead of RBA, kiwi braces for election risk

SYDNEY: The Australian dollar marked time on Monday ahead of a policy decision where rates are set to hit an 18-year high, while the New Zealand dollar braced for an election week that could see a change in government and, possibly, the central bank’s mandate.

The Aussie held at $0.7030, after ending Friday little changed despite a sharp selloff in global equities.

It ended October 1.3% higher, helped by hawish central bank commentary that lifted the chance of a quarter-point rate hike on Tuesday to nearly 90%.

That would take the cash rate to 4.85%, the highest since 2008.

Resistance is now around the 200-day moving average of $0.7058, with support at 70 cents.

With 30 of 32 economists polled by Reuters predicting a hike on Tuesday, markets are watching if the Reserve Bank of Australia will deliver and hint of more tightening, or stay on hold like what the Reserve Bank of New Zealand did last week.

“It is intriguing to see pricing for RBA holding below the confidence levels ahead of last week’s RBNZ decision,” said Sean Callow, a senior FX analyst at ITC markets, adding the RBA has sounded much more inclined to raise rates again than the RBNZ.

“This wariness among Australian rates traders does at least present the potential for the Aussie dollar to rally on confirmation of an RBA hike.”

The kiwi dollar slipped 0.2% to $0.5616, after ending last week 1.2% lower as the RBNZ unexpectedly held interest rates steady at 2.75% after two rate hikes this year. It finished October little changed.

All eyes are on domestic jobs data due on Wednesday.

Bank of New Zealand forecast a moderate employment growth of 0.4% in the third quarter, with the jobless rate holding steady at a decade high of 5.6%.

A strong result could boost market expectations for a rate hike in December, currently priced at 75%.

New Zealand heads to the polls on Saturday, with Prime Minister Christopher Luxon’s National coalition government facing a voter backlash over the high cost of living, rising unemployment and a weak economy.

The opposition Labour Party has signaled it wants to restore the central bank’s employment mandate.

“We judge that the NZD will increase modestly and bond yields will fall modestly if the current National-led coalition wins the election,” said Kristina Clifton, a senior economist at the Commonwealth Bank of Australia.

“A Labour-led coalition where the Greens have substantial negotiating leverage would likely be negative for the NZD and increase NZ government bond yields if concerns about government debt sustainability increased.”