SYDNEY: The Australian dollar was set for monthly gains, as mounting expectations of an imminent US interest rate cut pressured the greenback, while its New Zealand counterpart struggled to gain traction on bets of looser monetary policy at home.
On Friday, the Aussie edged up 0.1% to a new two-week top of $0.6540, having gained 0.4% overnight.
It is now set for a weekly gain of 0.7%, with bulls eyeing resistance around $0.6568 and $0.6625. For the month, it is up 1.8%, with much of the gain at the expense of the kiwi dollar, which slid 1.7% on the Aussie this month.
Against the greenback, the kiwi was flat at $0.5890 on Friday, after rising 0.5% overnight.
It is set for a weekly gain of 0.3%, but for the month, it barely budged as the Reserve Bank of New Zealand turned surprisingly dovish after its latest rate cut.
The two, often traded as proxies for the yuan due to their trade relationship with China, found some support in a surging yuan overnight, which strengthened past 7.12 per dollar, the strongest since November last year.
Record high global stocks that fuelled risk appetite also helped.
“We see merit in Chinese policymakers guiding for a stronger RMB, given its strikingly low valuation, and the need to facilitate trade negotiations with the US,” said Chang Wei Liang, FX & Credit Strategist at DBS.
“RMB gains could continue amid policy-guided appreciation.”
Much is now riding on the US PCE Price Index, the Federal Reserve’s preferred gauge of inflation, due later in the day. Forecasts are centred on a pick-up in core inflation to 2.9% in July, well above the Fed’s target of 2%.
Any upside surprises could deal a heavy blow to hopes of a cut in September, which is currently 85% priced.
In Australia, data showed private sector credit rose 0.7% in July, picking up from 0.6% the previous month, while pre-GDP partial data are suggesting some upside momentum to the economy in the second quarter. The GDP data is due next Wednesday.
American Dollar Exchange Rate