SYDNEY: The New Zealand dollar nursed losses on Thursday as markets priced out almost any chance of further rate hikes at home, while its Australian cousin drew little inspiration from mixed economic data.
The kiwi dollar was huddled at $0.6092, having shed 1.2% on Wednesday after the Reserve Bank of New Zealand (RBNZ) sounded decidedly less hawkish on rates.
Speaking on Thursday, RBNZ Governor Adrian Orr said he was confident the current official cash rate was restricting demand and that inflation would return to its target band of 1% to 3% this year.
The new-found confidence on inflation badly wrong footed markets which had thought there was a real chance the RBNZ would hike rates again in coming months.
Swaps now imply a 95% probability rates have peaked and around a 50% chance of a cut as early as October.
That sea change saw two-year swap rates dive to 5.005%, from a top of 5.225% on Wednesday. “Thoughts of rate hikes have all-but evaporated, and our call for a cut in November looks a little closer,” said Jarrod Kerr, chief economist at Kiwibank.
“A hike would have been a mistake - the data has clearly turned, and the RBNZ boffins finally agree,” he added. “What we got was a dovish tone.”
The Aussie was stuck at around $0.6492 after having followed the kiwi lower to lose 0.7% on Wednesday. There was some support around $0.6485 ahead of the February trough of $0.6443.
Australian data showed retail sales bounced 1.1% in January, which was under market forecasts of 1.5% but balanced by an upward revision to December.
A 0.8% rise in business investment for the December quarter was much as forecast and did nothing to change expectations that economic growth for the quarter will be very subdued.
Markets have already priced out any risk of another hike from the Reserve Bank of Australia (RBA) and an 80% probability of a first cut by August.
“We suspect retail sales will make only modest gains across Q1 as a whole and the softness should give the RBA greater confidence that restrictive monetary policy is subduing aggregate demand as intended,” said Abhijit Surya, an economist at Capital Economics.
“We’re growing more confident in our view that the Bank will start cutting rates by Q3, rather than in Q4 as most analysts are predicting.”
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