Australia dollar steadies as RBA pushes back on rate cut calls
By Wayne Cole
SYDNEY, Aug 6 (Reuters) -The Australian dollar steadied on Tuesday after the central bank held interest rates steady as expected and maintained a hawkish tone on the outlook, even as markets wager its next move will be a cut.
The Reserve Bank of Australia (RBA) kept its cash rate at 4.35% but cautioned that policy would have to remain restrictive enough to ensure stubborn core inflation returned to its target.
Investors took that as confirmation the central bank was finally done tightening, but was also in no hurry to cut rates. As a result, markets scaled back the probability of an easing in November to 68%, from 88%, and a slower pace of easing is seen next year. 0#RBAWATCH
"A largely hawkish hold from the RBA at its August meeting," said Dwyfor Evans, head of APAC macro strategy at State Street Global Markets.
"Continued vigilance to upside inflation risks that again indicate no rush from the RBA to adjust rates, particularly as the labour market remains tight and fears over the inflationary impact of fiscal measures in the medium term," he added.
"We still consider the RBA as a G10 laggard in terms of normalising interest rates."
Investors had heavily wagered on a steady outcome this week given core inflation had cooled as hoped in the second quarter, while recent carnage in global share markets argued for a cautious policy stance. AU/INT
Indeed, futures had been fully priced for a quarter point cut in November, when a week ago they had shown a 20% risk the next move would be a hike.
Asian stock markets were enjoying a relief rally on Tuesday as fears of a U.S. recession eased somewhat, boosting risk sentiment globally.
That helped the Aussie hold around $0.6505 AUD=D3, having briefly hit a nine-month low of $0.6349 overnight.
The kiwi dollar was hovering at $0.5930 NZD=D3, after also touching a nine-month trough of $0.5849. Resistance now lies at $0.5985.
The Reserve Bank of New Zealand (RBNZ) meets next week and markets imply around a one-in-three chance it could cut rates following a dovish turn in recent commentary. 0#RBNZWATCH
Swaps are almost fully priced for a quarter-point easing in October, and for another move in November.
Reporting by Wayne Cole; editing by Miral Fahmy
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