SYDNEY (Reuters) - Analysts are keeping the faith with the Australian and New Zealand dollars even as markets wager both countries will soon cut interest rates to record lows amid weak inflation and sub-par economic growth.
A Reuters poll of 43 analysts found the median forecast put the Aussie at $0.7100 on a one- and three-month horizon, unchanged from the previous poll in April.
That is a brave call given the currency hit a four-month trough of $0.6985 on Friday, having fallen for three weeks in a row as poor data fuelled expectations of policy easing.
The Reserve Bank of Australia (RBA) holds a board meeting on May 7 and there is a real risk it might cut the 1.5 percent cash rate for the first time since mid-2016.
Futures imply a 32 percent chance of a quarter-point easing, and even if the RBA does hold next week, a move is fully priced for July. There is also a 92 percent probability of a further cut to 1 percent by December.
That outlook contrasts starkly with the U.S. Federal Reserve which has only just rebuffed calls for an easing.
"The AUD has been short on luck," said Daniel Been, head of FX research at ANZ. "We expect the RBA to cut rates, and for the AUD to consolidate below $0.7000."
"How low the AUD falls will be defined by how aggressively the RBA eases and the success of Chinese stimulus efforts," he said, adding that ANZ saw fair value around $0.6500.
There are some who agree with him in the Reuters poll, with the lowest forecasts at $0.6700 for three months out and $0.6400 for one year.
The median predictions are much more forgiving, with the Aussie seen at $0.7200 in six months and $0.7300 on a one-year horizon. Such an outcome is not impossible, should the RBA not move at all or deliver a couple of cuts in rapid succession and then go on extended hold.
The median forecasts were also supportive of the kiwi, putting it at $0.6700 in one and three months. It was seen at $0.6800 in six months, and $0.6900 in one year.
Again, that looked like a long shot given the kiwi was trading at $0.6621 on Friday and not far from six-month lows.
The Reserve Bank of New Zealand (RBNZ) holds its next policy meeting on May 8 and swaps imply a 53 percent probability of a quarter-point cut in the 1.75 percent cash rate.
Yields on two-year bonds are already down at 1.42 percent, implying investors also see scope for more than one rate reduction.
"If the RBNZ does cut and leave the door open to further cuts, as we expect, markets will react strongly," said Dominick Stephens, Westpac's chief economist for New Zealand.
"Interest rate markets may move to price in more than one further cut, and the exchange rate would fall by a cent or more."
(Polling by Manjul Paul, Sujith Pai and Sumanto Mondal; Editing by Jacqueline Wong)
