The Australian dollar struggled on Tuesday after the country's central bank held interest rates steady as expected, encouraging market speculation the entire tightening cycle might be over.
The Aussie was down 0.6% at $0.6426 AUD=D3 , having taken a knock earlier when a survey of China's service sector disappointed.
The kiwi dollar followed with a fall of 0.4% to $0.5915 NZD=D3 , leaving behind last week's top of $0.6016.
Markets had fully expected the Reserve Bank of Australia (RBA) to hold rates at 4.1% for a third month at its September meeting. The bank also duly reiterated a tightening bias, though markets suspect it will not have to act on it.
"The RBA's policy stance overall remains a weight on the Aussie, especially against the US$ where the Fed funds rate seems highly likely to remain 125+ basis points above the RBA cash rate deep into 2024," said Sean Callow, a senior analyst at Westpac.
Futures had indicated almost no chance of a move this month, while the implied probability of a hike before year end dipped to 30% from around 36% early in the session.
0#RBAWATCH Three-year bond futures YTTc1 recouped early losses to stand steady at 96.210, while 10-year bond yields AU10YT=RR held at 4.137% to be almost 8 basis points below U.S. yields.
Figures on gross domestic product (GDP) due on Wednesday are forecast to show the economy grew a sluggish 0.3% in the June quarter as high inflation and rising rates crimped consumption.
Yet surprising strength in export volumes and government spending did look to have greatly lessened the risk of a negative GDP shock.
Marcel Thieliant, head of Asia-Pacific research at Capital Economics, warned that the slump in household spending looked to be gaining momentum and the economy was at risk of slipping into recession.
"The looming downturn in activity means that the RBA is unlikely to raise rates any further," he said. "Accordingly, we think the Bank will start to loosen policy by the first quarter of 2024 instead of the end of the year as priced in by financial markets."
Futures
0#FF: imply little chance of an easing until September next year, and only have around 18 basis points of cuts priced in by December.Investors also assume the Reserve Bank of New Zealand (RBNZ) is done hiking, having lifted its rates to a much more restrictive 5.5% and the economy already being in a technical recession.
Markets imply some chance of rate cuts starting in July, but have only 16 basis points of easing priced in by year end.
0#RBNZWATCH
