Economic news

AUD Trades Sideways as RBA seen Lagging on Rate Rises

SYDNEY, May 24 (Reuters) - The Australian dollar traded near the lower end of its five-and-a-half week range against the greenback on Monday, as the country’s central bank is seen lagging global peers in tightening monetary policy despite a strong economic recovery.

Its New Zealand counterpart was also trading sideways and at the lower end of its multi-week range, ahead of a monetary policy decision this week and as data showed retail sales volumes rose in the first quarter. [ nAZN0170SE]

The Aussie was trading 0.05% higher at $0.7735. The commodity-price sensitive currency has traded between $0.7675 and $0.7891 since April 15, as sky-rocketing commodities prices have prompted China’s government to curb “unreasonable” cost increases.

The New Zealand dollar edged 0.15% higher to $0.7174 , trading around the midpoint of its range since mid-April of between $0.7117 and $0.7304.

“Unlike last year, markets have now largely (if not fully) priced in a global V-shaped recovery that was aided both by policy and positive vaccine developments,” Morgan Stanley strategists said in a note.

“2Q21 will be the ‘last hurrah’ for AUD/USD strength...we think AUD/USD will begin to diverge from risk assets as the primary driver of the AUD shifts from global risk demand and global growth to policy divergence.”

Australia’s central bank will likely be slower than its peers to tighten monetary policy as wage growth and inflation remain below its target by more than in other countries such as the United States, Canada, UK and New Zealand, economists said.

Australia’s 10-year bond yields were two basis points lower at 1.65%, a spread of 4 basis points above U.S. yields.

The Reserve Bank of Australia (RBA) has said it will not raise interest rates until actual inflation was within its 2%-3% target band, with the central bank due to announce in July a decision on whether to expand its bond-buying programme.

“The RBA’s A$5 billion in weekly asset purchases is driving faster growth in their balance sheet than any other G10 central bank this year,” said Westpac strategists. “That is arguably capping the Aussie via the AU-US 10-year bond spread.”

Meanwhile, a high reading for the core U.S. personal consumption and inflation figures this week could revive talk of an early tapering by the U.S. Federal Reserve, economists said, which would add to the divergence in yields.

Editing by Jacqueline Wong

Source: Reuters

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