Australian dollar braces for RBA meet, holding gains against kiwi

SYDNEY, Sept 29 (Reuters) - The Australian dollar edged higher on Monday ahead of a central bank policy meeting where a rate hold is widely expected, though the focus will be on how policymakers guide future moves given the recent hawkish shift in market pricing.

It also held onto gains on the kiwi, hovering at a three-year top of NZ$1.1350 on the risk that policy easing in New Zealand could pick up pace next week after a run of soft economic data.

Against the greenback, the Aussie AUD=D3 edged up 0.2% to$0.6560, having fallen 0.6% last week to a three-week low of $0.6521. It has managed to stand above the key level of $0.6550, but remained well off its recent 11-month top of $0.6707.

The Reserve Bank of Australia is widely expected to hold interest rates steady at 3.6% on Tuesday but any guidance on the future moves will be closely scrutinised after a high monthly inflation reading had a number of analysts tip an end to the current policy easing cycle.

Swaps now imply a rate cut in November is merely a coin toss chance, with rates now seen bottoming out at 3.25%, up from 3.12% just a few weeks ago. 0#AUDIRPR

The RBA has said the monthly inflation readings are volatile, having cut rates only in February, May and August after assessing the quarterly inflation trends.

Paul Bloxham, chief economist, Australia, NZ & Global Commodities at HSBC, said market reaction to the monthly CPI data seemed a bit overdone.

"Although our central case is for cuts in November and February, there is some risk of fewer cuts. That said, we are not guiding much of our view on the basis of the monthly CPI indicator."

The kiwi was flat at $0.5777 NZD=D3, having slid 1.4% last week to break key support at 58 cents, which is now a major resistance level.

Markets are fully priced for a quarter-point rate cut to 2.75% from the Reserve Bank of New Zealand next Wednesday, and a near 30% risk it may even ease by 50 basis points. Rates could now bottom at 2.25% given the need for aggressive stimulus. 0#NZDIRPR

"AUD/NZD will continue to lift this week in our view," said Joseph Capurso, head of international economics at the Commonwealth Bank of Australia.

"AUD/NZD could test the September 2022 high of 1.1491 this week."