The Australian dollar looked set to end the week little changed on Friday, a remarkably resilient performance given the turmoil and uncertainty caused by Britain's shock vote to quit the European Union. The Australian dollar was flat at $0.7455 in early afternoon trade, a world away from last Friday when it whipsawed between $0.7305 and $0.7650 in a single session.
It remained near a two-year peak on sterling, which slid as low as A$1.7739 after the Bank of England signalled possible rate cuts ahead. Likewise, the New Zealand dollar was in a far more restrained range of $0.6981 and $0.7152 this week, compared with an eye-watering $0.6975 to $0.7305 range last Friday alone. It was up 0.5 percent on the week so far. New Zealand government bonds were a touch firmer, keeping yields around 3 basis points lower.
Australian government bond futures were taking a breather after a heady week, with the three-year bond contract steady at 98.510 against last Friday's record high of 98.590. All eyes are now on the Reserve Bank of Australia (RBA), which is considered highly likely to leave the cash rate steady at a record low 1.75 percent on Tuesday. A reinstatement of a clear easing bias could unsettle the currency. The worry is that Brexit would weaken both sterling and the euro over the long run, in turn keeping the Aussie higher than it would be, an outcome that is sure to be unwelcome by the RBA.
"Post-Brexit vote, we do not consider next week's meeting as 'live', but a fresh downdraft on the global economy is likely to feature in the RBA's accompanying statement," said Annette Beacher, Chief Asia-Pac Macro Strategist at TDSecurities.
"Whether this is interpreted as dovish or not is up for debate, and we are 50/50 for the Bank inserting a fresh explicit easing bias." Traders said the central bank may be more inclined to give such forward guidance after Saturday's national election, as it usually avoids saying much beforehand in case its comments are politicised.