SYDNEY: The Australian and New Zealand dollars edged up on Friday as investors hoped there might be some tentative progress on US-China trade talks, which helped offset a soft reading on local consumption.
Figures on Australian retail sales showed only a modest rise of 0.3% in March, while volumes for the whole first quarter failed to grow at all in a blow to the economy.
The subdued result suggested the Reserve Bank of Australia would again have to trim its outlook for household spending, adding to the case for a rate cut at its next meeting on May 20.
“We view an RBA rate cut of 25 bp in May as a near certainty, given the benign inflation outcomes over the past two quarters and the downside risks to global and domestic growth stemming from global trade policy uncertainty,” said Adam Boyton, head of Australian economics at ANZ.
“It is worth keeping in mind that policy, not just the economy, responds to shocks, and we expect 75 bps of cuts for the remainder of this year.”
Markets are fully priced for a quarter-point cut in the 4.10% cash rate this month and see rates at 3.0% or lower by year-end. For currencies, even the chance of progress in the Sino-US standoff on tariffs was enough to boost risk sentiment.
The Aussie firmed 0.4% to $0.640, recouping overnight losses.
The currency has now failed multiple attempts to break above $0.6450 resistance, but has also found solid support around $0.6340.
The kiwi dollar nudged up to $0.5920, after dropping 0.5% overnight before finding support at $0.5890.
It remains well short of the recent peak of $0.6029 and technical risks are for a further retreat toward $0.5820.
The Aussie also made ground on the yen, gaining 1.6% to a one-month top of 93.05 after a dovish outlook on inflation from the Bank of Japan led markets to scale back the chance of a rate hike there anytime soon.
Australia, NZ dollars make the most of US tariff tangle
At home, there was some risk of political uncertainty ahead as Australia goes to the polls this weekend in a tight race between the incumbent Labor government and the Liberal National opposition, which could result in a hung parliament.
However, markets have historically been little impacted by elections since the major parties’ economic policies are considered centrist and no threat to financial stability, while both are committed to the independence of the central bank.
American Dollar Exchange Rate