Australia, NZ dollars edge ahead, ponder RBNZ policy risks

By Wayne Cole

SYDNEY, Aug 18 (Reuters) - The Australian and New Zealand dollars inched higher in range-bound trade on Monday with markets already fully priced for a cut in kiwi interest rates this week, but less sure about the prospect of yet more easing afterward.

Swaps imply a near 100% chance the Reserve Bank of New Zealand will cut its official cash rate a quarter point to 3.00% on Wednesday, bringing its easing cycle so far to a whopping 250 basis points. 0#NZDIRPR

Investors are also wagering there might be one further cut to 2.75% by early next year, so all eyes will be on the central bank's projected path for the OCR.

"Monetary policy settings now near neutral, and the full benefit of prior rate cuts are still to be felt as more mortgages reset at lower rates," said Andrew Ticehurst, an economist at Nomura.

"Yet weaker growth and significant spare capacity is likely to provide comfort that underlying inflation pressures should remain modest," he added. "Our base case has been one in which the August easing is the final of the cycle, but we do flag risk that we could need to add an additional 50bp of easing to our profile."

Debt markets are priced for a dovish outlook given two-year swap rates are near their lowest since early 2022, making them vulnerable should the RBNZ signal a high bar to further easing.

A hawkish shift would, however, help the kiwi which lost 0.5% last week. It was trading a fraction firmer at $0.5934 NZD=D3, and has support layered at $0.5910 and $0.5857. Resistance is up around $0.5996.

The Aussie added 0.1% to $0.6515 AUD=D3, after slipping 0.3% last week. Support stands at $0.6483, with resistance at $0.6568.

Investors are wagering the Reserve Bank of Australia will ultimately cut another 50 basis points from its 3.60% cash rate, though a move is not expected until November. 0#AUDIRPR

Domestic data is thin on the ground this week with the next major release being monthly consumer prices for July on August 26, followed by gross domestic product for the second quarter a week later.