UPDATE 1-Australian dollar near 2-year trough, ANZ sees Feb rate cut

Recasts with ANZ rate call

By Wayne Cole

SYDNEY, Jan 10 (Reuters) - The Australian dollar huddled near two-year lows on Friday as a major local bank joined the chorus for a rate cut in February, while looming U.S. jobs figures have the potential to shove Treasury yields and the U.S. dollar higher.

In a change of call, ANZ analysts revised down forecasts for December quarter consumer prices following a soft reading on November core inflation.

They now saw trimmed mean inflation rising only 0.5% in the quarter, the smallest increase since mid-2021, while the six-month annualised rate would drop to just 2.6%.

"We think this will be enough for the RBA to cut the cash rate by 25bp at its February meeting, rather than waiting until May," said Adam Boyton, head of Australian economics at ANZ.

"We think the RBA will be cautious in dialling down the restrictiveness of current policy settings, and still expect only two 25bp rate cuts in this cycle,"

Investors had already nudged up the chance of a February cut in the Reserve Bank of Australia's 4.35% cash rate to 75%, from 50% at the start of the week. 0#AUDIRPR

The easing cycle is expected to be rather shallow, with rates bottoming around 3.60% by the end of the year.

The risk of a near-term rate cut kept the Aussie pinned at $0.6199 AUD=D3, having hit a fresh trough of $0.6173 overnight. The failure to sustain a rally to $0.6302 early in the week risks a break of its 2022 low at $0.6170 and a return to levels not seen since the 2020 pandemic.

The kiwi dollar languished at $0.5598 NZD=D3 after also touching a fresh low of $0.5572 overnight. Again, a failure to sustain a bounce to $0.5607 endangers its 2022 nadir of $0.5512.

Investors have for some time been wagering the Reserve Bank of New Zealand will chop its 4.25% cash rate by an outsized 50 basis points when it meets in February. 0#NZDIRPR

With the economy deep in recession, markets foresee further easing to around 3.0% by the end of 2025. Rates in the United States are seen dipping only modestly further to 3.90% this year.

Bond markets have had a tough week as Australian 10-year yields AU10YT=RR rose 11 basis points to 4.503%, while New Zealand yields NZ10YT=RR added 12 basis points to 4.663%.

Both have not suffered quite as much as Treasuries, however, such that Australian 10-year notes now pay 18 basis points less than U.S. debt compared to 20 basis points more a couple of months ago.

(Reporting by Wayne Cole; Editing by Jamie Freed)

((Wayne.Cole@thomsonreuters.com; 612 9171 7144; Reuters Messaging: wayne.cole.thomsonreuters.com@reuters.net))