SYDNEY: The Australian and New Zealand dollars hovered near multi-month highs on Tuesday as upbeat domestic data supported sentiment, while optimism over China’s stimulus plans boosted iron ore to three-month peaks.
Australian data showed retail sales rebounded 0.7% in August, beating forecasts of 0.4% thanks in part to the warmest August since 1910 bringing forward southern hemisphere spring spending.
There are some early signs that income tax cuts are helping boost consumer spending,“ said Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia.
“This is positive for the growth outlook and will help maintain momentum in the labour market, but additional consumer demand will do little to help ease current inflation pressures.”
Signs of life in consumption could reinforce the Reserve Bank of Australia’s (RBA) reluctance to cut interest rates anytime soon.
Markets imply only an 18% probability of a reduction in the 4.35% cash rate at the RBA’s November meeting, though an easing in December is still priced at 71%.
Of the major local banks, CBA is tipping a cut in December, while Westpac and ANZ see February as more likely. NAB had been the most hawkish with a May call, but has now shifted that to February as well.
The outlook for steady rates helped nudge the Aussie up 0.2% to $0.6928, having already hit a fresh 19-month top overnight at $0.6942.
Resistance lies at $0.6949 and $0.6973, with support around $0.6900.
Australia, NZ dollars resume charge as commodities jump, yen slips
The kiwi dollar held at $0.6338, after briefly cracking last December’s peak of $0.6369 to touch $0.6379. The next target is a high from July 2023 at $0.6392.
The Reserve Bank of New Zealand (RBNZ) meets next week and is considered certain to cut its 5.25% cash rate by at least 25 basis points, with market implying a 73% chance of a half-point move.
A business survey out on Tuesday showed sentiment was improving from depressed levels, but activity remained soft and fewer firms expected to raise prices in coming months.
“The signal on near-term labour market outcomes was softer, with surveyed employment levels falling to a new cycle low,” said Andrew Boak, an economist at Goldman Sachs.
“Our base case remains for the RBNZ to lower the OCR 25bps next week,” he added. “That said, we view the decision to cut 25bps vs 50bps as a very close call, with 50bps cut a clear possibility given downside risks to the RBNZ’s standing forecasts for CPI and employment.”