Australian dollar holds firm as RBA keeps jawboning on hikes
SYDNEY: The Australian dollar held just short of 11-week highs on Tuesday as details from the central bank’s last policy meeting suggested policymakers were closer to raising rates than investors previously thought. Minutes of the Reserve Bank of Australia’s August board meeting showed “several” members of the nine-person board felt a tightening was needed given upside risks to inflation, but…
The Australian dollar held steady near 11-week highs on Tuesday, as minutes from the Reserve Bank of Australia's (RBA) August board meeting indicated policymakers were more inclined to raise rates than previously anticipated. While several members felt a tightening was necessary due to inflation risks, they ultimately decided to keep the stance steady until more data became available.
The board emphasized that figures on jobs, inflation, and economic growth would be available before their next meeting on September 28 and 29, signaling readiness for a potential hike.
Investors presently estimate a 14% probability of a quarter-point increase in the cash rate, which could rise to 68% by December. Central bank officials have consistently cautioned that inflation risks are on the upside, and rates might be lifted again if inflation does not subside as expected. Three-year bond futures declined by 3 ticks to 95.440, while 10-year yields increased by 2 basis points to 5.011%, contributing to a 0.1% rise in the Aussie to $0.7155. The currency struggled to regain its peak of $0.7180 from the previous day.
Major resistance levels for the Australian dollar are at $0.7200 and $0.7277, with support around $0.7067. The New Zealand dollar (NZD) remained at $0.5961, slipping 0.3% overnight, and is facing resistance in the $0.5988/5993 range, supported at $0.5860. The Reserve Bank of New Zealand (RBNZ) is set to meet next week, with markets suggesting a 90% chance of raising the 2.5% cash rate by a quarter point, followed by a potential move to 3.0% by year-end.
According to Imre Speizer, an economist at Westpac, market pricing for the RBNZ's September hike seems fair, while the Federal Reserve's meeting appears less likely, with only a 45% chance. Speizer predicted further gains for the kiwi during the coming months as the RBNZ continues to hike rates, while the Fed hesitates to initiate its own cycle. He expects the NZD to range between $0.5900 and $0.6100 by year-end.
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