Australian dollar holds steady ahead of expected rate cut, kiwi flat
The main global risk event this week will be US consumer prices on Tuesday, which could justify or break the case of a Federal Reserve rate cut in September. Trade issues loom large with a U.S. tariff deadline on China due to expire on Tuesday amid expectations it will get extended again.
The Aussie was little changed at $0.6525, having finished last week with a 0.8% gain. It is holding above the 55-day moving average of $0.6511, although resistance lies ahead at $0.6541.
The kiwi dollar also slipped 0.1% to $0.5953, after rising 0.6% last week. It faces resistance at $0.5950 and $0.5970 while near-term support is at $0.5931.
The Reserve Bank of Australia is widely expected to cut interest rates by a quarter point to 3.6% on Tuesday, having shocked markets by holding steady just last month as policymakers wanted to wait for the quarterly CPI data to confirm inflation was slowing.
Australian second quarter CPI came in below expectations, strengthening market expectations for a rate cut.
'With… guidance from the RBA last month that the surprise pause in July was about the 'timing, not direction' of the cash rate trajectory, a cut this week seems highly likely,' said Paul Bloxham, chief economist for Australia, New Zealand and Global Commodities at HSBC.
'That said, growth is in an upswing, and very weak productivity means that only a modest pick-up in growth has left the economy close to fully employed and operating close to its full capacity. We expect the RBA to be cautious in its rhetoric about the likelihood of further cuts.'
Also key this week is the jobs data on Thursday, where expectations are centred on a rise of 25,000 jobs in July and the jobless rate likely held steady at 4.3%. That followed a surprisingly soft employment report for July and any unexpected weakness could fuel criticism that the RBA may be behind the curve.
Swaps imply a quarter-point cut has been fully priced in, with a very slim chance of an outsized half-point move. The RBA is most likely to skip a move in September, before cutting again in November.
Across the Tasman Sea, markets imply around a 90% chance of a quarter-point cut from the Reserve Bank of New Zealand to 3.0% on August 20, with a further move to a floor of 2.75% early next year.
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