Australia dlr climbs on kiwi as market bays for NZ rate cut
By Wayne Cole
SYDNEY, Aug 8 (Reuters) -The Australian dollar jumped on its New Zealand rival on Thursday as investors ramped up bets for a kiwi rate cut as soon as next week, while pushing out the timing for an easing at home.
New Zealand rate markets rallied sharply after the Reserve Bank of New Zealand (RBNZ) reported its survey of inflation expectations had seen the two-year outlook sink to 2.03% for the September quarter, from 2.33% previously.
That is right back in the middle of the RBNZ's 1-3% target band and well below the current inflation rate of 3.3%.
"This measure has not typically fallen to these sorts of lows except at times when actual inflation has fallen below 2%," noted Satish Ranchhod, a senior economist at Westpac.
"This reinforces our expectation the RBNZ will signal earlier rate cuts than previously assumed at their policy meeting next week – we're forecasting cuts will begin in October."
Investors are gunning for a move right now and swaps swung to imply an 81% chance the RBNZ would cut its 5.5% cash rate by a quarter point at its Aug. 14 meeting. 0#RBNZWATCH
Swaps had implied just a 48% chance early in the week. The market is now pricing in 90 basis points of easing by November.
In contrast, the head of the Reserve Bank of Australia (RBA) on Thursday flagged there was little chance of them cutting at all this year, based on their current forecasts.
Markets now imply a 48% chance of a rate cut by November, compared to 88% early in the week, and a slower pace of easing next year. 0#RBAWATCH
This was enough for Westpac to revise its call for the first cut out to February, from November. Analysts at ANZ are also tipping February for the first move, while NAB sees them holding on until May next year.
The diverging view on policy helped the Aussie gain 0.5% on the kiwi to NZ$1.0923 AUDNZD=. It rose 0.6% on the U.S. dollar to $0.6558 AUD=D3, aided in part by an improvement in risk sentiment across global equity markets.
The kiwi trailed at $0.6002 NZD=D3, but was still well up from the $0.5849 low hit when markets took a tumble on Monday.
Reporting by Wayne Cole
Editing by Shri Navaratnam
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
