New Zealand dollar bounces after overnight wobble, Aussie drifts sideways

Sydney reported on Friday that the New Zealand dollar experienced a bounce following an overnight fluctuation, thanks to the ongoing expectation of a rate increase. Meanwhile, the Australian dollar remained stagnant after a week teeming with hawkish central bank activity. The New Zealand dollar climbed 0.2% to $0.5865, rebounding from a 0.1% drop overnight, as one-year inflation expectations plummeted significantly.

Over the course of the week, it witnessed a 0.4% decline. However, investors continue to strongly speculate a rate hike in September, with approximately 85% of the betting aligned with this prediction. This inclination largely stems from the Reserve Bank of New Zealand's consistent indication of the necessity to tighten policy. Data revealed that New Zealand's manufacturing activity grew for the second consecutive month in July, and the RBNZ kept its loan-to-value ratio settings despite ongoing housing market struggles.

Meanwhile, in Australia, the Aussie remained stationary at $0.7061, having largely been unaltered overnight. For the week, it has only decreased slightly by 0.1%, with support anchored around $0.7022. The Reserve Bank of Australia maintained interest rates at 4.35% for a second consecutive week, a stance that was largely anticipated.

Governor Michele Bullock, however, voiced her personal belief that interest rates might need to be raised again due to the Strait of Hormuz being closed and poor productivity growth. Stephen Smith, a partner at Deloitte Access Economics, expressed that while many risks lie beyond the RBA's direct control, the inflation outlook remains uncertain in the near term.

Smith still anticipates a rate hike in November. Data released on Friday indicated another steep decline in home prices for the June quarter, suggesting that interest rate hikes are effectively dampening economic growth. Additionally, the RBA appointed a new monetary policy member, Melinda Cilento, who presently heads the Committee for Economic Development of Australia. Markets currently price a 70% probability of a final adjustment to 4.60% by early next year.