SYDNEY: The Australian dollar was poised on a knife edge on Tuesday as the market waited to see if interest rates would be cut for the first time in almost three years, a move that would likely see the currency test the floor of recent ranges.
The Aussie dollar was holding up at $0.7000 for the moment, with investors split on whether the Reserve Bank of Australia (RBA) would choose to ease now or wait a while.
The central bank holds it monthly policy meeting Tuesday and is under pressure to act given weak inflation and disappointing economic growth.
Interbank futures imply a 36 percent chance of a quarter-point cut, while of 42 analysts polled by Reuters 17 have tipped an easing with the rest on hold.
"Our view is that the RBA will cut rates over the next few months, but we narrowly favour rates remaining on hold this month with the Bank adopting a clear easing bias instead," said Rodrigo Catril, senior FX strategist at NAB.
"We expect the RBA to downgrade its forecasts for growth, inflation and, to a lesser extent, unemployment."
If the RBA does ease, markets will automatically assume it will go again, as the bank has never moved rates just once and stopped. It eased twice in 2016 and twice in 2015.
That outlook should see the Aussie test the recent four-month trough of $0.6960 and take it back to the flash-crash lows of Jan. 3.
Apart from that one-day aberration, the last time the Aussie was down around $0.6900 was in early 2016.
A steady decision could see the Aussie bounce on short-covering, though gains are unlikely to be large given the bank still has an easing bias.
The case for a cut was underlined by data showing retail sales were surprisingly soft in the March quarter, falling 0.1 percent when adjusted for inflation.
That posed a downside risk to economic growth in the quarter and offset another strong reading on international trade.
Australia's trade surplus for March beat expectations at A$4.9 billion ($3.43 billion) and set the seal on a record-breaking total of A$14.7 billion for the quarter.
The flood of cash might almost be enough to give the country a current account surplus, the first in modern history.
Across the Tasman Sea, the New Zealand dollar held at $0.6607, just above recent lows at $0.6581.
Both it and the Aussie had taken a hit on Monday after U.S. President Donald Trump's threats of more tariffs on China threatened to derail chances of a trade deal anytime soon and sent stock markets sliding.
The Reserve Bank of New Zealand holds its policy meeting on Wednesday and again markets are unsure if it will cut rates or hang on for a while longer.
Comments
Comments are closed.