THE Australian dollar was enjoying the view near 19-month peaks on Wednesday after inflation data slowed much as expected and failed to move the dial on rate cuts, while its New Zealand counterpart touched the highest for the year so far.
Both had been boosted by hopes the latest package of Chinese stimulus measures might help revive demand there, supporting prices for Antipodean commodity exports.
The Aussie stood at US$0.6890, having hit its highest since early 2023 at US$0.6908. The rally made bullish breaks of multiple former peaks and opens the way to US$0.7030 and US$0.7088.
The kiwi dollar reached US$0.6343, after spiking 1.2 per cent overnight, to be within a whisker of a US$0.6369 top from December last year. A break there would open the way to US$0.6412.
Australia’s monthly consumer price (CPI) report showed a drop of 0.2 per cent in August, taking the annual pace down to 2.7 per cent from 3.5 per cent. That was a three-year low and back within the Reserve Bank of Australia’s (RBA) target band of 2-3 per cent, though much of the drop was due to temporary government rebates on electricity.
Core inflation also slowed to 3.4 per cent, from 3.8 per cent, but crucially remained above the RBA band and a hurdle to rate cuts.
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Just the day before, the head of the RBA made it clear that further progress was needed on core inflation before a policy easing could be considered.
Governor Michele Bullock did concede that, for the first time since March, the board had not explicitly discussed a hike in rates, which was taken as slightly dovish by investors.
“The RBA will look past the sharp fall in headline inflation, but underlying inflation does appear to be easing in earnest,” noted Abhijit Surya, an economist at Capital Economics.
“The RBA has seldom started cutting rates when core inflation was outside its target range,” he added. “Nevertheless, the CPI suggests that risks are tilted towards the RBA starting its easing cycle sooner than our current forecast of Q2 2025.”
Markets now imply a 25 per cent chance of a quarter-point cut in the 4.35 per cent cash in November, rising to 75 per cent for a December move. Rates are seen at 3.25 per cent by the end of next year, compared to 2.80 per cent for the Federal Reserve and 1.73 per cent for the European Central Bank.
The Reserve Bank of New Zealand (RBNZ) is considered certain to cut its 5.25 per cent cash rate at a policy meeting in October, perhaps by 50 basis points. Rates are seen falling to around 2.82 per cent by the end of 2025. REUTERS
