The Reserve Bank of Australia is expected to keep interest rates unchanged, with a clear hawkish stance on inflation

　　The Australian and New Zealand dollars traded choppy higher on Friday on expectations of early interest rate cuts in the United States and Europe, but little domestic easing in Australia and New Zealand.

　　The Australian dollar is currently up 0.33% against the greenback, trading around 0.6625, having erased all of Thursday's losses. Hitting a four-month high of $0.6676 earlier this week, the Australian dollar has gained more than 4 percent in November and has found support at its 200-day moving average of $0.6580.

　　The Australian and New Zealand currencies rose against the euro after surprisingly weak EU inflation data fuelled expectations of an early or even aggressive interest rate cut by the European Central Bank.

　　Better US inflation data also bolstered market expectations of a Fed rate cut, which is fully expected for the first time next May. Investors' expectations for Australian policy are far less dovish, with interest rate futures implying a slim chance of a rate cut before December next year and an almost 50-50 chance of another hike.

　　The Reserve Bank of Australia (RBA) will hold its monthly policy meeting on December 5 and is expected to remain on hold given that it raised interest rates to a fresh 12-year high of 4.35 per cent just a month ago. However, policymakers are clearly hawkish on inflation and are likely to maintain a tightening bias in their post-meeting statement.

　　"We do not expect the RBA to raise the cash rate again in this cycle, but do not rule out another hike in the first half of 2024," said David Blohan, head of Australian economics at HSBC.

　　He added: "However, we now think the RBA will cut rates later than previously thought. We have changed our view and now think the RBA will stay on hold throughout 2024, later than the Fed and ECB are expected to cut rates by the big investment banks. We had expected the RBA to start cutting rates in the third quarter of next year."

　　On the NZD side, the Reserve Bank of New Zealand (RBNZ) warned this week that further interest rate hikes may be necessary and does not foresee any easing of policy next year.

　　"Persistently high core inflation creates uncertainty and leaves little room for policy error," said RBNZ deputy governor Hoxby.