By Wayne Cole
SYDNEY, Aug 20 (Reuters) – The Australian dollar inched higher on Tuesday as investors pared wagers on another early cut in domestic interest rates, while increasing speculation of fiscal stimulus globally aided risk appetite.
The move was modest, with the Aussie creeping up to $0.6775 from an early low of $0.6754, and it still faces layers of resistance from $0.6800 to $0.6822.
Likewise, the New Zealand dollar firmed slightly to $0.6420, from $0.6404, but has resistance above $0.6440.
The Aussie got a boost after minutes of the Reserve Bank of Australia’s (RBA) August policy meeting suggested it was in no rush to ease again, saying it would wait for evidence to accumulate before considering a move.
Markets had already been pushing out expectations for a rate cut, with September seen as a 12% chance and October at 68%. A couple of weeks ago, the October contract had implied a greater than 100% probability.
“The key takeaway is the RBA’s current central forecast likely needs to change somewhat or global downside risks to intensify, before the Board further eases,” said NAB economist Kaixin Owyong.
“We suspect the September Board meeting is probably a little early at this stage. NAB expects the next cut to the cash rate to occur in November, to 0.75%.”
Also arguing for a pause is the tide of stimulus globally which could lessen the threat of a major downturn.
China’s central bank on Tuesday trimmed its new lending reference rate by six basis points to 4.25% and said there was room for further action.
The Washington Post reported senior White House officials were discussing the possibility of a temporary payroll tax cut in an effort to boost the U.S. economy.
The Federal Reserve is expected to cut by at least a quarter point in September, while the European Central Bank recently flagged an easing and the German government is flirting with extra fiscal spending.
All the stimulus talk has seen bonds give up just a little of their huge gains. Yields on 10-year notes nudged up to 0.938%, having touched a record low of 0.85% last week.
Three-year bond futures were off a tick at 99.325, implying an yield of 0.675%. (Editing by Shri Navaratnam)