SYDNEY: The Australian and New Zealand dollars hovered near eight-month peaks on Wednesday as local inflation data came in slightly above forecasts, while their US counterpart struggled with aggressive market wagers on coming rate cuts.
The Aussie stood at $0.6801, having finally broken resistance at $0.6798 to reach a top of $0.6813. That took it to ground last trod in January and opened the way to $0.6871.
The kiwi dollar held at $0.6239, after hitting its highest in almost eight months at $0.6254.
The next bull targets are $0.6278 and a $0.6370 top from last December.
Australian data showed consumer prices (CPI) slowed to 3.5% in July, from 3.8% the previous month, when many analysts had been hoping for 3.4% or less.
A couple of measures of core inflation also slowed, with one touching its lowest since early 2022, but progress was again proving gradual.
The headline CPI is being biased down by government rebates on electricity bills, which could well see inflation fall back into the Reserve Bank of Australia’s (RBA) 2-3% target band this quarter.
The central bank, however, has repeatedly warned that core inflation remains too high and is unlikely to allow a cut in the 4.35% cash rate this year.
“Our composite measure of output prices suggests that core inflation will be within striking distance of the RBA’s 2-3% target band by year-end,” said Abhijit Surya, an economist at Capital Economics.
Australia, NZ dollars hover near 2024 highs, inflation tests loom
“However, given the still-tight labour market and the positive output gap, we’re sticking to our view that the RBA will err on the side of caution and refrain from cutting rates before the first half of next year.”
Investors are not so sure, in part because the US Federal Reserve is expected to kick off its easing campaign next month, along with cuts in Canada and the European Union.
thus imply a 48% chance the RBA will start easing in November and are almost fully priced for a decrease to 4.10% in December.
The Reserve Bank of New Zealand (RBNZ) has already cut its rates a quarter point to 5.25% and flagged more to come, leading markets to price in another 75 basis points of cuts by December.
Employment data out on Wednesday underlined why the central bank was acting quickly, with filled jobs falling for the fourth straight month in July.
“The soft starting point for the September quarter means that we’re likely to see some weak results overall in the quarterly unemployment report,” said Michael Gordon, a senior economist at Westpac.
“We’re currently forecasting a rise in the unemployment rate from 4.6% to 5.0% in the September quarter.”
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