Australia, NZ dollars lean on support, inflation lurches lower

SYDNEY: The Australian and New Zealand dollars steadied on Wednesday after coming under pressure from a broad rally in their US cousin, while a soft reading on Australian inflation added to the case against further rate hikes.

The Aussie edged up 0.1% to $0.6699, having fallen as far as $0.6677 from a top of $0.6734 the previous session. It has more chart support around $0.6641.

The kiwi dollar had faded to $0.6238, from a high of $0.6267 on Tuesday.

The currency is boxed in by resistance at $0.6285 and support at $0.6182.

Monthly data on Australian consumer prices showed annual inflation sank to a near two-year low of 4.3% in November, a marked slowdown from 4.9% in October and 5.6% in September.

Indeed, base effects mean the annual pace is likely to drop toward 3.5% in December and closer to the Reserve Bank of Australia’s (RBA) target band of 2-3%.

Core measures also cooled enough to suggest inflation for the entire fourth quarter will come in under the RBA’s own forecasts and lessen the urgency for further tightening.

Australia, NZ dollars brace for domestic data

The quarterly numbers are due on Jan. 31, just ahead of the RBA’s policy meeting on Feb. 6.

“Underlying inflation pressures look to be trending lower, including across services components, although we are mindful of measurement issues with the monthly data and will be putting more weight on the quarterly CPI release,” said Andrew Boak, an economist at Goldman Sachs.

“We continue to expect the RBA to remain on hold in the near term before starting an easing cycle in August.” Markets had already priced out almost any risk of another hike in the 4.35% cash rate and imply around a 40% chance of a first cut by May, with 72% for June.

That limited the reaction from bonds, with three-year futures unchanged at 96.29.

The implied yield of 3.71% is well below the overnight rate.

Markets are also convinced the Reserve Bank of New Zealand (RBNZ) is done tightening despite its hawkish rhetoric, given data suggest the economy slipped into recession last quarter.

Swap rates imply zero chance of another hike and are almost fully priced for a quarter-point cut in the 5.5% cash rate in May.