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Australian dollar firms as RBA stands pat; NZ dollar on defensive

Tuesday, March 7, 2017 - 12:22

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The Australian dollar inched higher on Tuesday after the country's central bank kept interest rates unchanged and showed no hint of considering another easing, underlining the outlook for steady policy.

[SYDNEY] The Australian dollar inched higher on Tuesday after the country's central bank kept interest rates unchanged and showed no hint of considering another easing, underlining the outlook for steady policy.

The Aussie was 0.3 per cent firmer on the day at US$0.7602, with dealers reporting a rush of algorithmic buying just before the policy decision.

The Reserve Bank of Australia's (RBA) March policy meeting ended with rates unchanged at 1.5 per cent as widely expected and the accompanying statement was generally upbeat.

Last month, RBA Governor Philip Lowe said the market was"reasonable" to price in unchanged rates for all of 2017, arguing further cuts would only stoke a debt-fuelled bubble in house prices.

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The central bank has not shown any inclination as yet to tighten given underlying inflation and wages growth are running at record lows and there is plenty of slack in the labour market.

The net result is that interbank futures show almost no chance of an easing out to September and then imply a growing chance of a hike into 2018.

"Household wages and income remain very weak, and import prices are falling, pointing to risk that inflation shifts even lower," said CBA's senior interest rate strategist Jarrod Kerr. "That could open the door for rate cuts if commodity prices pull-back as forecast, so this remains the greater risk for 2017," he added. "If that doesn't eventuate, rate hikes will likely be on the agenda for later in 2018."

The New Zealand dollar hit a near two-month low under major chart support at US$0.7000 on Tuesday, before steadying somewhat at US$0.7002.

The Kiwi had shed 0.75 per cent overnight, outstripping the US dollar's modest 0.1 per cent gain against a basket of world currencies.

Traders said speculators were shorting the Kiwi ahead of a global dairy auction due late Tuesday, that was expected to show a sharp drop in prices of around 8 per cent, as favourable farming conditions in New Zealand boosted supply.

Dairy is the country's biggest single-goods export.

New Zealand government bonds eased, sending yields 1.5 basis points higher at the long end of the curve.

Australian government bond futures dipped, with the three-year bond contract off 3 ticks at 97.920. The 10-year contract lost 1.5 ticks to 97.1500.

REUTERS

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