Australian dollar steadies after setback, rate support intact

Despite recent setbacks against the US dollar, the Aussie hovered near a 13-year top on the kiwi at NZ$1.2441 AUDNZD=R and a 22-month high on the euro, which fetched A$1.6093 EURAUD=R, as markets priced in a fourth rate hike from the Reserve Bank of Australia this year to 4.6% next week.

The Commonwealth Bank of Australia and ANZ on Monday changed their rate call to pencil in a hike next Tuesday, joining the other two Big Four banks. ANZ is tipping another move to 4.85% in November.

"The RBA has also had a range of opportunities over the past week, through its public communications, to pull back expectations of a near-term rate hike... To date, it has chosen not to," said Adam Boyton, head of Australian economics at ANZ.

"At this point it seems unlikely that the RBA communication slated for tomorrow will evolve sufficiently in such a direction to make a September rate hike sufficiently less likely."

Governor Michele Bullock, who warned inflation risks are materialising last week, will be giving remarks on Tuesday, followed by a speech by RBA board member Iain Ross in the evening. Assistant Governor Sarah Hunter will do a podcast interview early on Tuesday morning.

Across the Tasman Sea, the kiwi NZD=D3 was also flat at $0.5725, after dropping 1.5% last week to mark the fourth consecutive week of declines. It has support at a two-month low of $0.5705.

The Reserve Bank of New Zealand lifted rates to 2.75% this month but projected a slower and more limited tightening cycle than markets had wagered on. Markets imply a 60% chance the central bank will hike at its next meeting on October 28.

The Australian dollar steadied on Monday after two weeks of losses as a hawkish turn in the US rate outlook cooled its recent rally, though it remained near multi-year highs on the kiwi and euro with another rate hike at home all but locked in.