SYDNEY: The New Zealand dollar climbed from five-month lows on Wednesday as still sticky domestic inflation forced markets to further push back the extent of policy easing expected this year, bringing the Aussie with it.
The kiwi bounced up 0.4% to $0.5906, after plunging 2% in the past three sessions to as low as $0.5869. So far, November’s low of $0.5863 still holds as major support but resistance remains heavy around $0.5940.
The Australian dollar also rose 0.3% to $0.6421, having dropped 0.7% overnight to as low as $0.6390, the lowest since November. It has support at November’s low of $0.6340.
Data on Wednesday showed New Zealand’s consumer price inflation rate ticked up to 0.6% in the first quarter, in line with expectations.
Domestically driven inflation also accelerated adding to signs that the last mile to get inflation back to target could be bumpy.
“These are the sticky components which are likely to show persistence moving forward and continue to imply a more gradual easing of inflation than the RBNZ have anticipated,” analysts at ANZ said in a note to clients.
New Zealand dollar pops higher as RBNZ holds the line
“Stickiness in this data reinforces our view that cuts are not likely until 2025.”
Nomura, however, noted that headline inflation is still on track to return to target later this year, keeping the prospects of an August rate cut alive.
Still, two-year swap rates jumped 7 basis points (bps) to 5.1850%, the highest since late February.
Amidst a global shift in interest rate expectations, markets further pared back the amount of easing expected from the Reserve Bank of New Zealand this year to just 33 bps, compared with 60 bps last week.
They now see October as the most likely timing for an interest rate cut, from August last week.
With US Federal Reserve Chair Jerome Powell warning that rates could stay high for longer, traders suspect there could be no rate cut at all from the Reserve Bank of Australia this year.
Swaps are implying a 60% probability of a first cut only in December, meaning even one cut is not guaranteed. Next up is the Australia’s jobs data on Thursday.
Economists are expecting the economy added 10,000 jobs in March after a blockbuster February, while the jobless rate ticked up to 3.9%.
The resilience of the job market is one reason that the RBA has been cautious in its guidance that interest rates have peaked, with policymakers warning that they have not ruled anything in or out.
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