Australian, NZ dollars lose ground on Fed rate bets

[SYDNEY] The Australian dollar was a touch weaker on Monday after hefty losses in the last two sessions on growing expectations of a year-end rate hike by US Federal Reserve, while the New Zealand dollar was hamstrung by a local holiday.

The Australian dollar was at US$0.7598, after finishing last week 0.1 per cent lower. The falls largely came from a poor employment report last week that showed a drop of 53,000 full-time jobs in September as well as a decline in the number looking for work.

Meanwhile, the US dollar has been on a winning streak and within kissing distance of eight-month highs against a basket of currencies. Futures markets imply a near 70 per cent chance of a Fed rate hike by Christmas compared with 65 per cent early last week.

Domestically, investors will hold their horses for the consumer price report which is expected to show underlying inflation rose around 0.4 per cent for the third quarter and 1.6 per cent for the year.

"Such an outcome would support the AUD, particularly on the crosses, because it would lead to a modest upward revision to Australian interest rate expectations," said Elias Haddad, senior currency strategist at Commonwealth Bank.

"In contrast, Q3 underlying inflation of 0.3 per cent or less would raise the odds of a November rate cut and undermine the AUD."

The market is currently pricing a feeble chance of another rate cut by the RBA in its Nov 1 policy meeting after already easing twice this year.

The Aussie rose 0.24 per cent against the New Zealand dollar. It also inched higher on the yen as well as the pound. Sterling has lost nearly 20 per cent on the Aussie since UK's Brexit vote in June.

The New Zealand dollar was off 0.25 per cent at US$0.7145, its third straight day of losses.

The kiwi has come off a high of US$0.7485 hit last month as the country's central bank warned that further policy easing would be needed to stoke inflation.

New Zealand markets were shut for a public holiday.

Australian government bond futures were mixed, with the three-year bond contract down one tick at 98.30. The 10-year contract rose 1.5 ticks to 97.75.

REUTERS