Key points:
We saw the Australian dollar climbing to $0.6890, coming close to the $0.6908 mark, a level not touched since early 2023. Breaking these levels has opened the door for further movement towards $0.7030 and $0.7088.
This momentum has been largely driven by hopes that China’s latest round of stimulus will provide a much-needed boost to demand, especially for Australian commodities.
See: Aussie on the rise, trading at 0.68773. Download the VT Markets app now.
For the New Zealand dollar, its spike to $0.6343, a 1.2% rise overnight, has brought it within striking distance of $0.6369, a December 2022 high. Should this level break, the next target for traders would be $0.6412.
Australia’s inflation report showed that prices dropped 0.2% in August, bringing annual inflation down to 2.7% from 3.5%. This marked a three-year low, falling within the Reserve Bank of Australia’s (RBA) target of 2-3%.
However, much of the fall could be attributed to temporary electricity rebates from the government. More importantly, core inflation, which excludes volatile items like energy, slowed to 3.4%, but remained above the RBA’s target.
You might be interested: Australian Dollar Approaches 2024 High as China Lowers Rates Ahead of RBA Decision
Despite this fall in headline inflation, the RBA has indicated that more progress on core inflation is necessary before rate cuts are on the table.
Governor Michele Bullock hinted that while the board did not discuss rate hikes during their recent meeting, the easing of core inflation is still not enough to justify policy easing at this stage. The market is now pricing in a 25% chance of a 25-basis point rate cut in November, with those odds rising to 75% by December.
For New Zealand, traders expect the Reserve Bank of New Zealand (RBNZ) to cut its 5.25% cash rate in October, potentially by 50 basis points. The forecast for New Zealand’s cash rate is to see it fall to around 2.82% by the end of 2025, a lower trajectory compared to the RBA and other global central banks.
With both currencies breaking key resistance levels, we could see continued bullish momentum, especially if Chinese demand picks up or central banks pivot towards easing earlier than expected. However, with inflation remaining stubbornly above target in both Australia and New Zealand, we remain cautious about the speed and scale of any potential rate cuts.
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