You are here

Australia, NZ dollars slip for the day, but poised for weekly gains

[SYDNEY] The Australian dollar slipped on Friday after the country's central bank downgraded forecasts for inflation and growth, signalling that interest rates will remain steady, while the New Zealand dollar eased from a two-week high.

The Australian dollar was a tad weaker at US$0.7680. It went as low as US$0.7665 after the Reserve Bank of Australia's (RBA) quarterly statement on monetary policy.

Recently, the Aussie has been trapped in a band of US$0.7622-US$0.7729 but it has managed to eke out a 0.4 per cent gain for the week. Technical analysts say the Aussie needs to break above US$0.77 to gain upside momentum.

The RBA sliced its forecasts for core inflation, which is seen lurking under its 2-3 per cent target band for another two years, a strong signal that rates won't rise for a long time.

Market voices on:

"We are now assessing a central bank which is expecting that it will undershoot its core inflation target for another year, and that even one year out, inflation will still be at the bottom of the target zone," said Bill Evans, chief economist at Westpac.

"While the governor will continue to indicate that the next move in rates will be up, we think that the rhetoric around a long period of steady rates will gain further emphasis."

The RBA has left rates at a record low 1.5 per cent after easing in August 2016 to head off the danger of deflation.

Across the Tasman Sea, the New Zealand dollar traded around US$0.6954, from a two-week high of US$0.6980 touched on Thursday.

The currency is poised for its second straight winning week.

The gains largely came on the back of an unexpectedly upbeat policy statement from the Reserve Bank of New Zealand (RBNZ), which brought forward its projections of interest rate hikes by three months to the second quarter of 2019.

Analysts were still circumspect about a rally in the kiwi as uncertainty remained over the new Labour government's policies.

"Sustained moves higher will require USD sentiment to continue to sour, which is a possibility if (US) tax reform progress continues to be delayed," said Sharon Zollner, senior economist at ANZ.

Dollar bulls are fretting over likely delays in US corporate tax cuts after the Senate Republicans' bill to rewrite the tax code differed from their House counterparts' plan.

New Zealand government bonds gained, sending yields 0.5 basis point lower at the long end of the curve.

Australian government bond futures were mixed, with the three-year bond contract unchanged at 98.040. The 10-year contract eased 1.5 ticks at 97.370.