AUD/USD and NZD/USD Fundamental Daily Forecast – RBA Stuck with Smaller Rate Hike Amid Concerns Over Housing

The Australian and New Zealand Dollars are edging lower on Tuesday as traders await the release of key economic data out of China. Gains are also being capped by hawkish comments from two Fed officials who reminded traders that the central bank was not going to stop raising rates until inflation falls under control.

Aussie traders are also showing a limited response to the minutes of its last monetary policy meeting, which showed the Reserve Bank of Australia (RBA) expects to raise interest rates further over the period ahead but stuck with a smaller hike this month partly due to concerns of falling housing prices hurting consumer spending and the value of acting consistently.

At 02:03 GMT, the AUD/USD is trading .6695, down 0.0006 or -0.08% and the NZD/USD is at .6097, up 0.0002 or +0.03%. On Monday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $66.30, down $0.09 or -0.14%.

RBA Minutes

Minutes of the Nov. 1 policy meeting out on Tuesday showed the Reserve Bank of Australia (RBA) Board again considered hiking either by 25 basis points or 50 bps to return inflation to its 2-3% target range, but the arguments for a smaller hike prevailed.

The RBA Board noted rates had already risen by 275 basis points since May to a nine-year high of 2.85% and much of that had yet to feed through into mortgage payments.

While consumption had held up so far, the tightening has hit housing prices, which according to previous experience would likely have a large effect on consumer spending, according to the bank.

Reuters reported other arguments for a smaller hike include still soft wage growth, some easing in global supply chain issues, a decline in commodity prices and the impact from synchronized global tightening reducing inflationary pressures over the period ahead.

The Board agreed that acting consistently would support confidence in the monetary policy framework among financial market participants and the community more broadly,” the minutes showed.

However, the Board, determined to return inflation to its target, did not rule out a return to larger increases if the situation warranted, and conversely, it is prepared to keep rates unchanged for a period while accessing the state of the economy if needed.

“Interest rates are not on a pre-set path,” the minutes showed.

Short-Term Outlook

The price action suggests the RBA minutes delivered as expected. The focus now shifts to the RBA and Fed meetings in December.

Aussie traders are leaning towards a further quarter-point hike at the next policy meeting in December, but imply an around 25% chance the RBA might hold steady. Rates are seen peaking around 3.7% by July next year.

In the U.S., futures traders are pricing in a 50 basis point rate hike in December.