Australia, NZ dollars unloved as markets say goodbye to rate hikes

SYDNEY, Feb 29 (Reuters) – The New Zealand dollar nursed
losses on Thursday as markets priced out almost any chance of
further rate hikes at home, while its Australian cousin drew
little inspiration from mixed economic data.

The kiwi dollar was huddled at $0.6092, having shed
1.2% on Wednesday after the Reserve Bank of New Zealand (RBNZ)
sounded decidedly less hawkish on rates.

Speaking on Thursday, RBNZ Governor Adrian Orr said he was
confident the current official cash rate was restricting demand
and that inflation would return to its target band of 1% to 3%
this year.

The new-found confidence on inflation badly wrong footed
markets which had thought there was a real chance the RBNZ would
hike rates again in coming months.

Swaps now imply a 95% probability rates have peaked and
around a 50% chance of a cut as early as October.

That sea change saw two-year swap rates dive
to 5.005%, from a top of 5.225% on Wednesday.

“Thoughts of rate hikes have all-but evaporated, and our
call for a cut in November looks a little closer,” said Jarrod
Kerr, chief economist at Kiwibank.

“A hike would have been a mistake – the data has clearly
turned, and the RBNZ boffins finally agree,” he added. “What we
got was a dovish tone.”

The Aussie was stuck at around $0.6492 after having
followed the kiwi lower to lose 0.7% on Wednesday. There was
some support around $0.6485 ahead of the February trough of
$0.6443.

Australian data showed retail sales bounced 1.1% in January,
which was under market forecasts of 1.5% but balanced by an
upward revision to December.

A 0.8% rise in business investment for the December quarter
was much as forecast and did nothing to change expectations that
economic growth for the quarter will be very subdued.

Markets have already priced out any risk of another hike
from the Reserve Bank of Australia (RBA) and an 80% probability
of a first cut by August.

“We suspect retail sales will make only modest gains across
Q1 as a whole and the softness should give the RBA greater
confidence that restrictive monetary policy is subduing
aggregate demand as intended,” said Abhijit Surya, an economist
at Capital Economics.

“We’re growing more confident in our view that the Bank will
start cutting rates by Q3, rather than in Q4 as most analysts
are predicting.”
(Reporting by Wayne Cole; Editing by Edwina Gibbs)



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