The Australian dollar huddled near four-month lows on Monday as investors wagered the country's central bank would reiterate its neutral stance at a policy meeting this week following a run of soft domestic data. New Zealand also has a policy announcement this week but economic news there has been generally upbeat, which could lead to some upward adjustment to its growth and inflation forecasts.
The Aussie dollar was stuck at $0.7642, just a whisker from its recent rough at $0.7625. Bulls were still suffering a hangover from disappointing retails sales figures out last Friday that highlighted risks to household consumption from high debt and slow wages growth. With inflation also under the floor of the Reserve Bank of Australia's (RBA) 2 to 3 percent target band, investors have steadily pushed out the timing of any rate hike.
The futures market is now not fully pricing in a move until early 2019, a marked change from a couple of months ago when it was implying a hike by August 2018. The RBA holds its monthly policy meeting on Tuesday and releases updated economic forecasts on Friday, which could see the outlook for inflation trimmed a little.
The Reserve Bank of New Zealand's (RBNZ) rates decision and monetary policy statement (MPS) are due on Thursday and there is some risk it could sound less dovish given recent strength in jobs data and plans for fiscal expansion by the new left-leaning Labour government. "Focus turns to Thursday's MPS, a more important statement than usual in our view," said Jason Wong, markets strategist at BNZ bank.
"It'll be hard for the Bank to ignore the number of indicators that point to rising inflationary pressure. The balance of risk is pointing to higher...NZD by the end of the week in the absence of any significant global forces." Increased fiscal spending under Labour combined with a drop in the exchange rate and a lack of spare capacity in key sectors like construction could see stronger inflation in the coming year.
The kiwi dollar was steady at $0.6904 and some way from its recent trough at $0.6818. New Zealand government bonds were broadly firmer in price, lowering yields as much as 8 basis points at the long end of the curve. Australian government bond futures dipped in line with US Treasuries, with the three-year bond contract off 2 ticks at 98.050. The 10-year contract eased half a tick to 97.4050.