Australian dollar gets little lift from RBA's hawkish tilt
By Wayne Cole
SYDNEY, June 18 (Reuters) -The Australian dollar barely budged on Tuesday after the country's central bank warned there were still reasons to be vigilant against inflation, leading markets to slightly lengthen the odds on a cut later this year.
The Reserve Bank of Australia (RBA) ended its June policy meeting by holding rates at 4.35% but noted that data revisions meant household consumption now looked to have been stronger than first reported.
It also noted that monthly consumer price figures had shown no improvement, and service sector inflation was proving sticky.
"The statement on balance struck a somewhat hawkish tone, which suggests that the Board discussed another rate hike just as it did in April," said Marcel Thieliant, head of Asia-Pacific economics at Capital Economics.
"Yet the Board already set a high bar for another upside surprise to its inflation forecasts," he added. "Accordingly, we still think that the next move will be a rate cut rather than a hike, but that's unlikely to happen until early next year."
Markets have priced out almost any chance of a further increase given the economy almost ground to a halt in the first quarter and wage growth had slowed. AU/INT 0#RBAWATCH
Futures now imply around a 56% chance of a cut in December, compared to 64% before the announcement. A first quarter-point easing is not fully priced until April, with only 52 basis points of cuts seen by the end of 2025.
The Aussie held steady at $0.6610 AUD=D3, after bouncing from a low of $0.6586 overnight. Major support is down at $0.6576, with resistance at last week's top of $0.6705.
The New Zealand dollar eased a touch to $0.6118 NZD=D3, having briefly been as low as $0.6105 overnight. Resistance lies at the recent five-month high of $0.6222.
Core inflation in Australia is proving more stubborn than hoped at an annual 4.0%, and another high reading this quarter would add to the risk of a rate rise at the August RBA meeting.
Yet, recently announced government rebates on energy bills look set to bring headline consumer price inflation of 3.6% sharply lower in the second half of the year.
Justin Smirk, a senior economist at Westpac, estimates annual CPI could slow to just 2.7% in the third quarter, well below the RBA's forecast of 3.8% and back into its long-run target band of 2-3%.
Such an outcome would make it harder for the RBA to justify a hike even if core inflation were to remain uncomfortably high.
Reporting by Wayne Cole; Editing by Sonali Paul
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