Summary:
The Australian dollar was nearing its peak on Tuesday. Inflation slowed to 3.6% in April but is unlikely to fall to the 2-3% target until 2025.
The Australian dollar was around its highest in a month on Tuesday. Although inflation slowed to 3.6% in April, it was unlikely to fall below the 2-3% target range until 2025.
The RBA will hold its key policy rate steady for a fourth straight meeting on Tuesday and at least until September, according to a Reuters poll of economists who forecast just one interest rate cut this year.
Elsewhere, the RBNZ was predicted to cut rates by 50 bps this year, a separate Reuters poll showed. The central bank has limited scope to cut interest rates this year due to sticky inflation, according to the OECD.
The Australian and New Zealand dollars were forecast to trade around $0.67 and $0.61 by October. The currencies' path from now onwards hinge in part on China – the leading trading partner of the Antipodes.
Analysts are till split on the outlook for the world's second largest economy. Goldman Sachs and Morgan Stanley raised their GDP forecasts closer to the official target last month, partly due to growth in manufacturing.
However, China's fiscal stimulus is losing its effectiveness and high debt levels limit how much fiscal stimulus a local government can undertake, S&P Global Ratings said.
The Australian dollar is displaying a death cross at the strong resistance area, so an imminent pullback is the path of least resistance. That being said, a hawkish-than-expected RBA will help extend the rally.
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