SYDNEY, March 6 (Reuters) – The Australian and New
Zealand dollars were under pressure again on Wednesday as soft
economic data underlined the case for future rate cuts, helping
bond yields hold at one-month lows.
The Aussie was struggling at $0.6494, having
touched a two-week trough of $0.6477 overnight before finding
support. The bearish price action suggested a break of
resistance at $0.6535 was needed to avoid a retreat to its
February trough of $0.6443.
The kiwi dollar eased to $0.6071, having reached a
near three-week low of $0.6071 on Tuesday. It faces strong
resistance around $0.6114 with support down at $0.6040/50.
Data showed the Australian economy grew just 0.2% in the
fourth quarter as rising mortgage rates and high tax payments
choked off consumer spending.
The report also showed domestic price pressures eased in the
quarter, as did labour costs which should comfort the Reserve
Bank of Australia (RBA) as it battles inflation.
“The economic slowdown broadened over the second half of
2023 from broadly flat consumer spending to other parts of the
economy,” said Westpac senior economist Andrew Hanlan.
“The prospect is for conditions to improve from mid-year,
boosted by a policy pivot to less contractionary settings,” he
added. “Income tax cuts commence in July and the RBA is expected
to cut rates, likely beginning in September, in response to a
taming of inflation.”
Markets currently imply a 42% chance of a rate cut in June,
and 86% for a move in August. They have 43 basis points of
easing priced in for all of 2024, half of what’s implied for the
United States.
Yields on 10-year bonds were down at 4.05%,
having fallen from 4.15% at the end of last week.
Goldman Sachs analyst Andrew Boak has revise down his
forecasts for inflation to reflect changes to weights in the
consumer price index, the downward trend in monthly CPI data and
updated bottom-up forecasts across a range of components.
“Overall, our base case for inflation is now materially
below the RBA’s standing forecasts, which show inflation
remaining above the 2-3% target band until late 2025,” Boak said
in a note.
“We continue to expect the RBA to start easing in August,
ultimately taking the policy rate to 3.25% by mid 2025.”
The outlook for global rates could change depending on what
Federal Reserve Chair Jerome Powell says to lawmakers later on
Wednesday, though most analysts assume he will stick to the
recent cautious approach to easing.
(Reporting by Wayne Cole; Editing by Jacqueline Wong)
