Australia, NZ dollars underpinned as trade deals buff sentiment

SYDNEY: The Australian and New Zealand dollars held firm on Wednesday as news of a potential U.S. trade deal with Japan salved risk sentiment, but also lessened some of the uncertainty that has been plaguing the greenback.

President Donald Trump said on Tuesday the U.S. and Japan had struck a trade deal that included a 15% tariff, below the 25% threatened, though a lack of detail limited the overall reaction.

“The deals are providing some boost to market sentiment on the grounds that worst case tariff rates have been avoided,” said Shane Oliver, chief economist at AMP.

“That said, the rates so far are way up on levels at the start of the year and still pose the threat of a significant negative impact on U.S. economic growth and global trade disruption.”

The reaction in currency markets was cautious, leaving the Aussie a fraction firmer at $0.6562, having bounced 0.5% overnight as the U.S. dollar eased broadly.

That put a buffer between last week’s low of $0.6454 and refocused attention on the recent eight-month peak of $0.6595.

The kiwi dollar held at $0.6006, after rallying almost 0.6% overnight and away from a recent trough of $0.5906. Resistance now lies around $0.6043.

There was no domestic data of note, though Australia’s statistician did release more details of the upcoming switch to a full monthly consumer price series that could speed up the pace of interest rate changes.

Australia is one of the few developed world countries to report CPI quarterly, making it hard for policymakers to read inflation trends in a timely manner.

The Reserve Bank of Australia skipped a rate cut this month in large part to wait for a reading on second quarter CPI due on July 30. The steady decision badly wrong-footed markets, an outcome that might well have been avoided if a full monthly CPI had been in place.

Indeed, the RBA has a long history of waiting for quarterly CPI readings before changing rates, suggesting the start of the new series in November could accelerate the whole process.

The head of the central bank, Michele Bullock, is due to speak on inflation and employment on Thursday and is likely to be asked the importance of the data shift.

Markets currently imply a near 100% chance the RBA will cut the 3.85% cash rate at its next meeting in August, and lower it to 3.10% by the end of the year.