SYDNEY: The Australian and New Zealand dollars regained some footing on Friday as their U.S. counterpart ran into fresh selling, but for the week both nursed losses as markets increased bets on rate cuts at home.
The Aussie edged up 0.3% to $0.6505, and off a three-week low of $0.6454 hit overnight.
That left it down 1% for the week and short of a recent eight-month top of $0.6595.
The kiwi dollar bounced 0.4% to $0.5955, having touched a trough of $0.5906 overnight. It was down 0.9% on the week, moving further away from a nine-month high of $0.6120 hit on July 1.
A surprisingly soft jobs report this week has seen markets move to fully price in a quarter-point rate cut to 3.60% from the Reserve Bank of Australia (RBA) when it meets on August 12.
There is talk the RBA might consider an easing of 50 basis points, as they did in May, though that might look like it was admitting a mistake by not cutting this month.
One hurdle is the consumer price report for the second quarter due at the end of July where a reading on core inflation of 0.8% or above could give the RBA pause.
Most analysts are expecting around 0.7%, which would see annual core inflation slow to 2.7%, from 2.9%, and nearer the middle of the RBA’s 2% to 3% target band.
The disappointing jobs data suggests it would now take a very high inflation number to prevent a cut, while a result around 0.6% could see the market get even more dovish.
“Should Q2 CPI print weaker and reciprocal U.S. tariff developments step up, then we may well head into the August meeting with more than 25bp priced,” said Su-Lin Ong, chief economist at RBC Capital Markets.
“There are clearer signs of loosening with the labour market moving more into balance from erring tight,” she added. “Coupled with inflation back within target, this suggests that policy settings should move more quickly towards neutral.”
Ong is tipping cuts in August, November and early next year.
Market are priced for a finishing point of 3.10%, with a 40% chance of reaching 2.85%.
New Zealand’s CPI report is due on Monday and forecast to show a rise in the annual pace to 2.8% from 2.5%, largely due to food and electricity prices.
However, core measures are expected to be more benign, leaving the door open to a rate reduction in August.
American Dollar Exchange Rate