The Australian and New Zealand dollars steadied on Wednesday as gains on Wall Street underpinned global risk sentiment, while markets pondered the chances of more rate hikes in Australia.
The Aussie held at $0.6436 AUD=D3 , having fallen 0.8% the previous session and away from resistance around $0.6520. Support now lies at $0.6405.
The kiwi dollar was flat at $0.5935 NZD=D3 , after slipping 0.5% on Tuesday. Support comes in at $0.5913 with resistance up at $0.6000.
Markets are still digesting the Reserve Bank of Australia's (RBA) decision to hike rates to 4.35% but water down its tightening bias to make it more conditional on incoming data.
"The softer tightening bias – against the backdrop of the RBA's consistent reluctance to hike this cycle - reinforces our view that rates will now remain on hold," argued analysts at Goldman.
Analysts at the major local banks were divided on the outlook, with CBA and Westpac leaning toward no more hikes, while NAB is tipping a rise in February and ANZ wants to see more data before ruling out a move.
"We expect the RBA Board to form the view that a single 25bp adjustment to rates is not enough to mitigate the risks on inflation – seeing a further rise, most likely in February after the fourth-quarter consumer price report," said Alan Oster, chief economist at NAB.
Among other houses, HSBC, TD Securities, Nomura, Capital Economics and AMP Capital all have a central case of steady rates, but with risks on the upside.
Futures
0#YIB: imply only a 30% chance of a further hike in December, but that rises to around 70% out to June next year.0#RBAWATCH The latter pricing would put the RBA in an odd position given investors also assume the Federal Reserve and European Central Bank will be cutting rates by mid-2024.
Domestic inflation is also set to slow materially in coming months, partly due to base effects, so real rates will be rising even if the RBA just holds steady.
"Our concern remains that the RBA has tightened more than necessary with a high risk of recession," said Shane Oliver, chief economist at AMP Capital.
"While the risk is still on the upside for the cash rate in the short term, the RBA probably won't have to act again and we continue to see it cutting rates starting around mid-year."
