Australian, NZ dollars hold steady; hawkish RBA lends support
SYDNEY: The Australian and New Zealand dollars traded sideways on Wednesday as investors counted down to an influential reading on US inflation, while support from Reserve Bank of Australia’s hawkish rate outlook helped underpin the Aussie. A higher-than-expected core US consumer price index reading could strengthen the case for a Federal Reserve rate hike and boost the US dollar, while a softer…
The Australian and New Zealand dollars held steady on Wednesday, with markets awaiting an important US inflation reading. The Reserve Bank of Australia’s hawkish outlook on interest rates provided support for the Australian dollar. A higher-than-expected core US consumer price index could strengthen arguments for a Federal Reserve rate hike, boosting the US dollar, while a softer outcome would have the opposite effect.
There is a 50% chance the Federal Reserve might raise rates in September and a similar probability of the RBA tightening further in November. Although the RBA kept interest rates unchanged at 4.35% on Tuesday, Governor Michele Bullock took a more hawkish stance in a media conference, suggesting a possible rate hike if inflation fails to recede as hoped.
The RBA’s forecasts indicate a declining inflation rate, with a target of 0.64% for the year from Q3. If the inflation outlook turns out to be higher than expected, or if economic growth does not slow as anticipated, the RBA may consider raising interest rates in November. Currently, the market does not anticipate any rate cuts next year, but analysts believe the RBA’s hawkish tone was aimed at preventing premature easing of financial conditions.
The Aussie dollar stayed at $0.7062, up 0.1% from the previous session, while the kiwi dollar remained steady at $0.5881.
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