The Australian and New Zealand dollars steadied in cautious...

The Australian and New Zealand dollars steadied in cautious trade on Monday ahead of retail sales and monthly inflation readings later in the week, which are set to shape the interest rate outlook Down Under.

The Aussie AUD=D3 was little changed at $0.6717, after a whippy response to U.S. data on Friday which saw it slump to near one-month lows of $0.6641 before reboundng to $0.6714. It now faces resistance at the 10-day moving average of $0.6776, having lost 1.5% last week.

The kiwi dollar NZD=D3 was also idling at $0.6247, having also bounced off a more than three-week low of $0.6182 on Friday. Resistance is around $0.6283 after a drop of 1.2% in the first week of the new year.

The two had suffered a blow on Friday as the stronger-than-expected U.S. payrolls data dashed rate cut hopes, leading to a sell-off in risk assets. But the release of a surprising weak ISM survey on the services sector, with a measure of employment dropping to the lowest in over three years, helped reverse some of the price action.

Futures 0#FF: are pricing in around 134 basis points of U.S. rate cuts next year, about five rate cuts, compared with expectations for six cuts at the end of last year. The Federal Reserve's dot plot forecasts three reductions. FEDWATCH

The shift overseas led domestic markets to price in about two rate cuts for the Reserve Bank of Australia this year, despite little data and official commentary at home. However, that could change with the release of retail trade and monthly inflation numbers on Tuesday and Wednesday.

Retail sales are expected to show a robust 1.2% growth in November from October helped by Black Friday sales.

Consumer inflation, meanwhile, is likely to slow further to an annual rate of 4.4% in November from October's 4.9%, and the report will shed some light on services inflation, which some analysts expect could remain elevated.

Paul Bloxham, chief economist of Australia, NZ & Global Commodities at HSBC, believes sticky core inflation, weak productivity and less restrictive policy and still high commodity prices are among the reasons why the RBA will not deliver any rate cuts this year.

"Our central case is that the RBA is likely to be on hold through 2024, with cuts not arriving until 2025," Bloxham said.