Australian dollar finds support as rates seen on hold

By Wayne Cole

SYDNEY, Nov 3 (Reuters) - The Australian dollar was left to drift on Monday after a mixed bag of economic news did little to move the dial on expectations for steady interest rates this week, while keeping alive the chance of an eventual easing.

The Reserve Bank of Australia meets on Tuesday and is now widely seen skipping a cut and holding the cash rate at 3.6% following an uncomfortably high reading on core inflation.

However, a disappointing reading on household consumption challenged policymakers' confidence that consumer demand was recovering strongly.

Spending rose just 0.2% in September, on top of a flat result the previous month, while volumes for the whole third quarter were also up 0.2%, well down from the previous quarter's 0.9% jump.

This meant household consumption added less than 0.1 percentage points to economic growth in the third quarter, with inflation eating up most of the nominal gains.

The patchy outcome came despite a marked pickup in home prices, which rose at the fastest pace in more than two years in October to boost household wealth and spending power.

Futures imply less than a one-in-ten chance the RBA will cut rates by a quarter point on Tuesday, and are not fully priced for a move to 3.35% until the middle of next year. 0#AUDIRPR

"Monetary policy is still somewhat restrictive, so some further cuts to the cash rate next year are warranted," said Luci Ellis, chief economist at Westpac.

"Our base-case expectation is now that the RBA does not cut the cash rate until May 2026, to 3.35%. A further 25bp cut to 3.1% in August is also expected."

Investors continue to wager the Federal Reserve will cut U.S. rates again in December, though Fed policymakers do sound divided on the prospect. 0#USDIRPR

The diverging outlook for rates in the near term kept the Aussie supported at $0.6544 AUD=D3, after gaining 0.5% last week. Resistance is up around the recent peak of $0.6617, with support at $0.6530 and $0.6471.

The kiwi dollar was stuck at $0.5720 NZD=D3, having shed 0.4% last week in large part due to losses against the Aussie as markets continue to price in a rate cut from the Reserve Bank of New Zealand this month. 0#NZDIRPR

That left the Aussie up at NZ$1.1429 AUDNZD=R, after rising 0.9% last week to near a three-year top of NZ$1.1445.