By Wayne Cole
SYDNEY, April 19 (Reuters) - The Australian and New
Zealand dollars kept a rally alive on Wednesday as markets
pondered the outlook for interest rates ahead of some key
inflation reports.
The Aussie firmed to $0.6735 , having added 0.4%
overnight. It faces resistance at $0.6750 ahead of the recent
seven-week top of $0.6808, while support lies at $0.6681.
The kiwi dollar crept to $0.6213 , and away from the
week's low of $0.6162. Near-term resistance stands at $0.6225,
ahead of its recent high of $0.6314.
Markets have nudged up the risk of the Reserve Bank of
Australia (RBA) lifting rates in May following minutes of its
April meeting.
Futures still only imply around a 20% chance of a
quarter-point hike in the 3.6% cash rate, though that has
doubled this week and analysts are generally more hawkish.
"A reasonable interpretation from the Minutes is that a
further increase of 0.25% is a much more realistic outcome in
May than was the case in April," said Westpac chief economist
Bill Evans. "That increase in May remains Westpac's view."
Much will depend on what the consumer price report for the
first quarter shows on April 26, and particularly the trimmed
mean which shocked with a jump to 6.9% the previous quarter.
Evans said a pullback to around 6.5-6.6% was needed for the
RBA to be confident that inflation would meet its 2-3% target by
mid-2025 as projected.
"A number significantly above that forecast would,
presumably, put some doubt on the staff's two-year path back to
target and certainly see a response from the Board at the May
meeting," he added.
A pointer to the outcome could come from New Zealand's CPI
report due on Thursday, though the picture has been clouded by
natural disasters and a major spike in food prices.
As a result, median forecasts are for the CPI to rise an
annual 7.1%, down only slightly from the December quarter's
blistering 7.2% pace. Measures of core inflation are seen
staying stubbornly high above 6%.
Markets imply a 75% chance the Reserve Bank of New Zealand
(RBNZ) will hike by a quarter point to 5.5% in May, having
already tightened by 500 basis points. "There's growing evidence that the RBNZ’s actions are
beginning to dampen demand, but it wants to see more," said
Jarrod Kerr, chief economist at Kiwibank.
"And until core inflation firmly turns south and expectations
are re-anchored, we can only expect more from the RBNZ."
(Reporting by Wayne Cole; Editing by Muralikumar Anantharaman)
Messaging: wayne.cole.thomsonreuters.com@reuters.net))
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