The Australian and New Zealand dollars nudged lower on Monday as a very soft reading on producer inflation brought an Australian rate cut closer, sending bond futures soaring near to historic highs. The Australian dollar eased to $1.0330, from $1.0371 in NY on Friday, having gone as deep as $1.0326 after PPI data showed a surprise fall.
Later it trimmed losses after a private report showed Chinese factory activity stabilising in April, alleviating worries about a sharp growth slowdown in the world's second-largest economy. Antipodean currencies are extremely sensitive to news out of China, a key export market. The New Zealand dollar had a softer tone, trading last around $0.8161, dragged lower by the Aussie. It was down 0.3 percent from $0.8193 in late New York trade on Friday. Traders remained wary for the kiwi, following a near 10 percent drop in dairy prices last week.
"Fundamentals will win out eventually," said ANZ-National chief economist Cameron Bagrie, adding that dairy prices are a bellwetheer of the New Zealand economy Australia's key event this week is first-quarter inflation on Tuesday which could echo today's subdued PPI outcome, clearing the way for the first easing policy since December.
The Reserve Bank of Australia (RBA) has already indicated it will consider cutting the 4.25 percent cash rate at the May 1 policy meeting, providing inflation numbers are tame. Financial markets imply a 92 percent probability of a cut to 4 percent in May, and almost 100 basis points of easing over the next 12 months CSSY.