Australian dollar gains on euro weakness, kiwi waits for inflation data

The Australian dollar gained strength on Monday due to capital outflows from the euro following protests in France, while New Zealand's kiwi awaited crucial inflation figures that could determine the timing of a third interest rate hike this month. China's economy grew 4.5% in the third quarter, which calmed concerns about policymakers needing to implement more aggressive stimulus.

The Australian currency rose 0.5% to $0.6978, up from a 15-week low of $0.6895 last week. This movement pushed the dollar above its seven-day moving average of $0.6961, with near-term resistance at 70 cents.

The euro weakened, contributing to the Australian dollar's climb, and it climbed 0.5% to 0.6210 euros. The surge through the 0.62 level was driven by unrest in France, prompting stop-loss buying and accelerating the upward momentum. Barclays analysts maintained a bullish outlook on the Australian dollar, citing its role as a beneficiary of the AI commodity supercycle, which is boosting the economy's terms of trade.

The Reserve Bank of Australia (RBA) previously raised interest rates by 25 basis points, but the minutes from that meeting suggested a more hawkish stance. Assistant Governor Christopher Kent noted that the labor market had tightened faster than anticipated, with the unemployment rate reaching 4.7%, earlier than expected.

Economists anticipate that the RBA will raise rates during its upcoming meeting on November 2-3, with a 30% probability, and a December hike is at a 50% probability. Assistant Governor Andrew Hauser is set to speak on Wednesday. Meanwhile, the New Zealand dollar edged up 0.1% to $0.5659, after a 0.7% increase last week, ending a seven-week decline.

The focus is on New Zealand's inflation data, released on Thursday, with Kiwibank economists expecting a slight slowdown to 4% in the third quarter from 4.1% previously. They are particularly concerned about the impact of record-high petrol prices on inflation. The Reserve Bank of New Zealand (RBNZ) is skeptical of non-petrol price increases, fearing further rises in other goods and services due to surging petrol and diesel costs.

This could push the likelihood of a rate hike in October rather than December. Swaps indicate an 87% chance that the RBNZ will increase interest rates a third time this year to 3% on October 28, with four hikes fully priced into the second half of 2023.