Australian dollar dips as RBA retains hawkish stance but stresses uncertainty

SYDNEY: The Australian dollar slipped on Tuesday after the country’s central bank governor said another interest-rate hike could still be needed to restrain inflation, but emphasised that the near-term outlook remained highly uncertain. The currency also came under pressure from a sharp selloff in Asian equities, which soured risk sentiment. Reserve Bank of Australia Governor Michele Bullock said further moderation in domestic demand and labour market conditions would likely be necessary to curb inflation, adding that it was not yet clear whether the three rate hikes already delivered would be sufficient. Her comments prompted investors to trim expectations of an August rate increase, with markets pricing about a 20% chance of a move from the current 4. 35% cash rate, down from around 30% previously. However, a rise to 4. 60% by year-end remains almost fully priced in. The next major test will be consumer price data for the June quarter, due on Wednesday, where forecasts are for core inflation to accelerate 0. 9%, nudging the annual pace up to 3. 7% from 3. 5%. That would be further away from the RBA’s target band of 2% to 3%, but a little lower than its own forecast of 3. 8%. Analyst estimates range from 3. 6% to 4. 0% and any upside surprise in the core would greatly narrow the odds of a hike when the RBA next meets on August 11. The Aussie was off 0. 2% at $0. 6970, having topped out at $0. 7011 overnight. It again stalled short of resistance around $0. 7026, leaving support at $0. 6962 and $0. 6913. The currency did mark a two-month high on the yen overnight at 114. 66, creeping close to a 36-year peak at 114. 91. Australian 3-year bond futures edged up 2 basis points to 95. 405, and away from a two-month low of 95. 255 hit last week when oil prices were surging. The kiwi dollar was flat at $0. 5770, having been as high as $0. 5811 overnight before fading. Immediate support comes in at $0. 5762 and $0. 5744. Markets imply almost a 90% probability that the Reserve Bank of New Zealand will hike its cash rate when it meets on September 2, in part because rates are still relatively low at just 2. 5%.

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