Australian dollar rises on growing bets of RBA tightening

SYDNEY: The Australian dollar rose on Tuesday on growing expectations that the central bank will be forced to tighten monetary policy much sooner than expected, despite minutes from its latest meeting reiterating its dovish rates outlook.

The New Zealand dollar also firmed one day after data showed consumer prices rose at their fastest pace in over a decade in the third quarter, reinforcing bets of further tightening ahead.

The Aussie was up 0.41pc at $0.7442, after touching a 6-week high of $0.7448, even as minutes showed the Reserve Bank of Australia still does not expect to raise interest rates until 2024.

The growing discrepancy between market expectations and RBA commentary in Australia comes as central banks in other developed countries are beginning to unwind or think about scaling back pandemic-era stimulus.

"We would expect the RBA to step in and defend its YCC target, possibly this week," said Su-Lin Ong, head of Australian fixed income strategy at RBC Capital Markets.

Under its yield curve control policy (YCC), the RBA targets to maintain three-year yields at 0.1pc.

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"Should it not step in ... it would be hard not to conclude that there is some emerging shift in the RBA's policy stance," she added.

In New Zealand, the kiwi was up 0.61pc at $0.7127, the highest since Sep. 16, one day after the strong inflation data.

The Reserve Bank of New Zealand earlier this month raised interest rates to 0.5pc, the first hike in seven years, and signalled further tightening to come.

"The Kiwi rate market is now implying that the official cash rate (OCR) will reach at least 1pc by February 2022, and there's a very real chance it will be raised to 1.25pc," said Sean Keane, a strategist at Triple T Consulting.

"So far, as the inflation numbers go, the RBNZ won't find it hard to justify that level of tightening."

New Zealand yields broadly rose between 1 and 3 basis points, particularly at the front end of the curve.

The 10-year bond benchmark yield was slightly lower at 2.353pc after jumping 7 basis points on Monday.

In Australia, yields on 3-year bonds were steady at 0.77pc after a whopping 32 basis point surge on Monday. Ten-year yields stood unchanged at 1.74pc.