Australia, NZ dollars hit six-week lows, domestic data a mixed bag

The Australian and New Zealand dollars slipped to six-week lows on Thursday as equity markets globally took a turn for the worse amid more bad news on inflation, while domestic data were too mixed to offer any aid.

The Aussie slipped 0.4% to $0.6811, having breached chart support around $0.6840 to hit a low of $0.6805. The next major bear target is its July trough of $0.6683.

The Kiwi was down at $0.6093, after cracking support around $0.6110. A break of its July trough at $0.6062 would see it back at levels not visited since mid-2020.

Risk sentiment took a knock overnight when inflation in the euro zone topped forecasts at 9.1%, leading markets to shorten odds on a 75-basis-point rate hike from the ECB.

The hawkish shift saw the Aussie lose further ground to the euro, which is heading for a fifth session of gains.

The Reserve Bank of Australia (RBA) is considered likely to raise its rates by 50 basis points next week to 2.35%, and to keep the door open for more tightening ahead.

Markets have rates topping at around 3.85% by May next year, which would be well into restrictive territory.

Most analysts are not quite as hawkish.

"We are confident that the Board will decide to raise the cash rate by a further 50 basis points, and slow the pace of increases to 25 basis points from the October meeting," said Bill Evans, chief economist at Westpac.

"This second stage of the tightening process is expected to extend out to February next year with the rate peaking at 3.35%," he added. "At that point we expect that it will become evident that the economy is clearly slowing as the series of rate hikes and high inflation weigh on households and business." The impact is already being felt in the housing market where prices last month took their largest dive since 1983, led by a sharp retreat in Sydney.

Other data showed rising mortgage rates triggered a steep 8.5% drop in new home loans in July, the sharpest decline since the start of the pandemic.

Figures on business investment were more mixed with overall spending dragged down by 0.3% as torrential rain and supply constraints hit construction work.

However, spending on plant and machinery rose a solid 2.1% and investment plans for 2022/23 held up well.

(Reporting by Wayne Cole; editing by Richard Pullin)