Kiwi braces for RBNZ decision, Aussie tries to steady after setback

The New Zealand dollar edged higher on Monday as traders braced for a widely expected interest rate hike at home, while the Aussie was trying to recover momentum after a U.S. dollar-induced setback.

The kiwi dollar NZD=D3 rose 0.2% to $0.5919, after slipping 0.6% on Friday to finish 1% lower last week. It has support at the $0.5860 and $0.5821 levels and is set to end August 0.6% higher.

The Reserve Bank of New Zealand is widely expected to raise interest rates by a quarter-point to 2.75% on Wednesday, but there is much uncertainty about how high interest rates would go with its new economic forecasts. Oil prices climbed over 2% on Monday as fresh fighting broke out between the U.S. and Iran, fuelling inflation risks.

Investors see rates reaching 3.0% by December and 3.5% next year as the central bank shifts from outright stimulus to a more neutral policy stance.