SYDNEY: The Australian dollar took a breather from its recent rally on Wednesday as a widening war in the Gulf weighed on risk sentiment, though hawkish central bank messaging added to the case for an imminent rate hike.
The Aussie was steady at $0.7220, after hitting a four-month peak of $0.7231 overnight before running into some resistance. Having rallied more than 5% from its June low, it is closing in on the May peak of $0.7277 and a mid-2022 high of $0.7285.
Speaking late on Tuesday, Reserve Bank of Australia Deputy Governor Andrew Hauser expected the board to discuss the case for a rate hike at the next policy meeting on September 28-29, adding that he has become more worried now about inflation after his recent trip to the U.S.
After raising rates by 75 basis points this year, the central bank has held them at 4.35% for two consecutive meetings. Yet the economy continues to outperform expectations and inflation pressures remain persistent.
Hawkish comments from Hauser, coupled with higher oil prices, were enough to prompt Goldman Sachs to shift its rate hike call forward to this month from November before.
"We expect the Board to adopt a pre-emptive tightening to avoid falling behind the curve, with a follow-up hike in November a material risk," Goldman analysts in a note.
Markets also increased bets for a move this month to 4.6% to 75%, from 67% a day earlier. Traders are also ascribing an 80% chance rates will reach 4.85% next year.
That kept the Aussie buoyant near multi-year highs versus a number of crosses. It traded at NZ$1.2325, just a touch below a 13-year top of $1.2351 hit on Tuesday, while it held onto gains versus the euro, which fetched A$1.6095, just above a two-year low of A$1.6075.
The kiwi dollar was flat at $0.5858, having lost 0.4% overnight to as far as 0.5836. It has run into sizeable selling in recent days as the market pared the chance of further aggressive tightening by the Reserve Bank of New Zealand.
Investors have sharply scaled back expectations for a third rate hike from the RBNZ in October to just 20%, but are still pricing a move to 3.0% in December. Swaps also imply an eventual top of 3.5%, when the RBNZ had projected a peak of 3.15%. - Reuters
