SYDNEY: The Australian dollar held firm on Friday after its US counterpart slipped on a patch of soft data, while the New Zealand dollar was still smarting from a surprising pullback in headline inflation.
The Aussie stood at $0.6737, having added 0.4% overnight. It faces resistance at $0.6750 ahead of the recent seven-week top of $0.6808, while support lies at $0.6681.
The kiwi dollar faded to $0.6168, after touching a five-week low of $0.6150 overnight.
That divergence saw the Aussie hit a two-month peak on the kiwi at NZ$1.1922, having jumped 0.8% on Thursday.
Those losses followed data showing New Zealand consumer price inflation slowed to an annual 6.7% in the first quarter, under forecasts of 7.1%.
While tradable inflation hit its highest since 1999 it was still well below what the Reserve Bank of New Zealand (RBNZ) had forecasted and suggested inflation had finally peaked.
The market is still pricing a 75% chance the hawkish RBNZ will hike by a quarter point to 5.5% in May, but now sees rate cuts starting early next year given the economy is clearly slowing.
Two-year swaps duly fell back to 5.05%, from a top of 5.255% early in the week.
“We wonder whether we are getting to the point where any future RBNZ rate hike from current lofty levels may simply help cement fears of recession and future rate cuts, such that future RBNZ rate hikes may be less NZD-supportive,” said Andrew Ticehurst, an analyst at Nomura.
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“We maintain our positive AUD/NZD view, and have increased the target on our long position with a target of NZ$1.1200 by end-Q2.”
The data also suggested some downside risk for Australian consumer prices due on April 26. Analysts are generally looking for headline inflation to slow to 7.0%, from 7.8%, with the trimmed mean measure dipping to 6.7% from 6.9%.
That might still be high enough for the Reserve Bank of Australia (RBA) to hike its 3.6% cash rate in May given the concerns revealed in their April policy minutes.
“We think that if Q1 23 underlying inflation is in line with our forecasts a 25bp rate hike at the May Board meeting is more likely than not, particularly given the labour market remains very tight,” said Gareth Aird, head of Australian economics at CBA.
“But we continue to look for rate cuts in late 2023 as we believe inflation will fall more quickly than the RBA currently anticipates.”
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