SYDNEY: The Australian dollar and New Zealand dollars wallowed near two-year lows on Thursday as their US counterpart caught an updraught from lofty Treasury yields, while domestic data disappointed high expectations.
Figures showed Australian retail sales rose a solid 0.8% in November as Black Friday discounting attracted frugal shoppers, but that missed market forecasts of a 1.0% increase.
Anyway, analysts merely assumed the extra spending was just brought forward from Christmas and sales would retreat in December.
That should be no hurdle to a February cut in interest rates, given data had already shown core inflation slowed more quickly than expected in November.
Analysts were busy revising down their fourth-quarter forecasts for the core trimmed mean measure of inflation, with CBA trimming theirs to 0.5% from 0.6%.
That would be the smallest rise since mid-2021 and would imply a six-month annualised pace of just 2.6%, well within the Reserve Bank of Australia’s 2-3% target band.
Nomura economist Andrew Ticehurst is tipping a quarterly rise of only 0.4%, which would be a green light for easing.
“We previously assigned a ~60% probability to a first 25bp RBA easing in February, and think this has now likely risen to at least 70%,” he said.
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“Our base case remains for rate cuts in February, May and August, returning the cash rate to a neutralish 3.60%.”
Markets imply around a 75% probability of a quarter point reduction in the 4.35% cash rate next month and also see rates around 3.60% by the end of the year.
At the same time, investors have scaled back expectations for US easing and see rates there bottoming around 3.90%. That outlook kept the Aussie pinned at $0.6200, uncomfortably close to its recent trough of $0.6179.
Bears are focused on the 2022 low of $0.6170, where a breach would take the Aussie to depths not seen since the 2020 pandemic.
The kiwi was struggling at $0.5596, within a whisker of the recent low of $0.5588. Its 2022 trough is down at $0.5512.
Markets are wagering the Reserve Bank of New Zealand will chop its 4.25% cash rate by 50 basis points when it meets on Feb. 19, and take rates to 3.0% by the end of 2025.
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