Australia, NZ dollars firm as French fallout pressures euro
TLT•The Australian and New Zealand dollars held firm as European currencies gained following riots in France, while investors awaited domestic rate decisions. Markets priced in a 56% chance of an Australian rate hike by December and an 89% chance of a New Zealand quarter-point hike on October 28.
1. Currencies hold firm
The Australian dollar was flat at $0.6977 on Tuesday after rising 0.5% overnight, while the New Zealand dollar stood at $0.5665 after edging up 0.1%. The Aussie also bounced against the euro, sterling and Swiss franc as political concerns weighed on European bonds.
2. Rate decisions ahead
Investors are watching an appearance by Reserve Bank of Australia Deputy Governor Andrew Hauser on Wednesday and third-quarter consumer price data due October 28. Analysts see core inflation rising 1.0% in the quarter, keeping the annual pace at 3.6%, above the RBA's 2% to 3% target; Westpac forecasts a 0.9% quarterly rise and 3.5% annual inflation, against the RBA's 3.3% forecast. Markets imply a one-in-three chance of a rate hike in November and a 56% chance in December.
3. New Zealand outlook
The Reserve Bank of New Zealand will announce its rate decision on October 28. Investors price in an 89% probability of a quarter-point increase to 3.0%, and markets imply rates could reach 3.75% or more next year, above the RBNZ's 3.20% projection.
