Australia, NZ dollars hold their ground, RBNZ on horizon

SYDNEY: The Australian and New Zealand dollars held their ground on Friday after more hawkish commentary from Federal Reserve officials gave their US counterpart a brief lift.

The Aussie bounced 0.3% to $0.6703, having retreated as far as $0.6635 at one stage overnight and away from its recent two-month top of $0.6798.

That left it flat for the week following last week’s huge 3.7% rally.

The kiwi dollar firmed 0.4% to $0.6152, after diving as deep as $0.6065 overnight.

It was up almost 0.6% on the week but off a three-month peak of $0.6204. Both had taken a knock when St.

Louis Fed President James Bullard warned US rates might have to rise to between 5.0% and 7.0% to truly tame inflation.

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The Aussie found some support from expectations the Reserve Bank of Australia (RBA) would hike again in December following upbeat data on jobs and wages this week.

Futures implied around an 80% chance of a quarter-point rise to 3.10%, having largely given up on talk the central bank might actually pause its tightening.

“Robust wages and employment growth cements a 25bp rate hike for December,” said David Plank, head of Australian economics at ANZ.

“And we think the RBA will deliver at least another 75bp of hikes by May 2023, which will take the cash rate target to 3.85%.” Indeed, he was not so sure the RBA would be able to stop even then given wage growth was now threatening to break out above 4% next year.

“In which case a cash rate in excess of 4% by mid-2023 becomes more likely, with consequent negative implications for economic growth and house prices among other things,” added Plank.

Across the Tasman, markets are split on whether the Reserve Bank of New Zealand (RBNZ) might hike by 50 basis points or a super-sized 75 bps at its policy meeting next week.

This is the last meeting of the year and there will not be another until late February, so policymakers may feel they have to be aggressive now to stem runaway inflation.

“Since the RBNZ’s last decision in October, inflation and expectations of inflation have surprised on the upside,” said Jarrod Kerr, chief economist at Kiwibank. “And wage growth is accelerating.”

“We expect to see an outsized 75bp hike to 4.25%, and they wont stop there,” he added. “We’re likely to see a 5% cash rate next year.”