The Australian and New Zealand dollars held overnight gains on Friday, although they were still set for weekly losses after an upside surprise in U.S. inflation fuelled doubts about rate cuts abroad and at home.
The Aussie AUD=D3 hovered around $0.6539, having bounced 0.4% overnight to as high as $0.6553. It, however, met resistance at the 200-day moving average of $0.6543 and is set for a weekly loss of 0.6%.
The kiwi dollar NZD=D3 lingered near $0.5999, after also gaining 0.4% overnight to as much as $0.6015. It is headed for a weekly drop of 0.2%, with the fall being checked by still hawkish guidance from its central bank that policy needs to be restrictive for a sustained period.
The two got a respite overnight as U.S. producer price data did not make for a nasty surprise, calming fears of a resurgence in inflation that triggered a sea change in interest rate expectations in both the U.S. and Down Under.
Swaps have pushed back the timing of a first rate cut from the Reserve Bank of Australia to December with an implied probability of just 77%, meaning they were not sure of even one cut this year.
0#RBAWATCH Analysts at ANZ said they do not think there are many local conclusions to draw from the U.S. CPI report, but it is a reminder that Australia's path to within-target inflation is unlikely to be linear.
"As a result, we think it will be some time before the first RBA easing, and we continue to favour November for that first cut," they said in a note to clients on Friday.
Australian bonds were set for heavy weekly losses. Three-year bond futures YTTc1 plunged 20 ticks this week to 96.15, the lowest since mid-February. Ten-year bonds YTCc1 dropped 19 ticks to 95.70.
In New Zealand, all eyes are on the consumer inflation report due on Wednesday for clues on Reserve Bank of New Zealand's interest rate path.
Traders, who had priced in August being the most likely month for any rate cut, now expect a move in October. Total easing expected this year has been slashed to 43 basis points, compared with 60 bps before the U.S. CPI data.
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