Australia, NZ dollars pinned near multi-month lows, RBA set to hike

SYDNEY: The Australian and New Zealand dollars languished near multi-month lows on Monday, as rising oil prices added inflation risks and lifted US yields, with their technical outlook turning increasingly bearish. The Aussie was flat at $0. 7020, after losing 1. 5% last week to hit an eight-week low of $0. 7004. It was the third straight week of declines that broke key support at the 200-day moving average of $0. 7025, leaving it well below a four-month peak of $0. 7238 seen just a little over two weeks ago. The losses came despite markets narrowing the odds on further rate rises, with the Reserve Bank of Australia now considered all but certain to hike by 25 basis points to 4. 60% on Tuesday, its fourth rate hike this year. Markets are currently pricing in about 40 basis points of more tightening after Tuesday. “AUD/USD may receive some brief support from a ‘hawkish hike’ by the Reserve Bank on Tuesday, ” said Joseph Capurso, head of foreign exchange at the Commonwealth Bank of Australia. But Capurso said he still expected the Aussie to fall this week, likely testing $0. 6951. “The strength of the US economy is attracting capital and weighing on all currencies… Strong economic growth and weak growth in the labour force is a recipe for ongoing high inflation. ” On Wednesday, Australia will publish the monthly inflation data for August. Forecasts are centred on an annual rise of 4% in headline inflation, picking up from 3. 5% in July, as petrol costs jumped, while underlying inflation remained sticky at 3. 6%. Across the Tasman Sea, the kiwi hit a three-month low of $0. 5650, after losing 1. 1% last week to mark the fifth straight week of declines. Support is now at the July low of $0. 5627. Paul Bloxham, chief economist at HSBC, expects the Reserve Bank of New Zealand to turn more hawkish after two rate hikes this year, with the economic recovery gathering pace. “For New Zealand, a well-below neutral cash rate starting point has driven a need to hike faster, ” said Bloxham. “We see the RBNZ hiking again in Q4, now more likely in October given recent hawkish remarks, and twice more in H2 2027. ” Markets now imply an 80% chance that the Reserve Bank of New Zealand will hike by a quarter point to 3. 0% at its next meeting on October 28 and ultimately take rates toward 4. 0%.

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