New Zealand dollar rallies as RBNZ comes close to hiking

SYDNEY: The New Zealand dollar bounced on Wednesday after the country’s central bank came unexpectedly close to lifting interest rates, while its Australian peer dipped as data showed headline consumer price inflation slowed in April.

The Reserve Bank of New Zealand matched expectations by keeping the official cash rate at 2.25%, but the six-member board split down the middle on whether to hike in a surprisingly close call.

The board also warned that rates would most likely need to increase sooner and by more than envisaged previously as rising energy costs posed an upside risk to inflation.

Markets quickly nudged up the probability of a quarter-point increase in July to around 75%, and saw rates reaching 3.0% by year end.

The RBNZ itself projected an OCR of 2.84% for December and 3.15% by the end of 2027, compared to 2.4% and 2.8% previously.

The kiwi dollar popped up 0.6% to $0.5869, reversing a similar pullback in the previous session. Resistance looks solid at $0.5887, while a break of support at $0.5816 would be bearish for a retreat toward $0.5681.

Also read: Australia, NZ dollars gain with risk mood, RBNZ in focus

Australian data showed monthly consumer prices rose 0.4% in April, under forecasts for 0.6%. The annual pace slowed to 4.2%, from 4.6%, though mostly because of a government tax break on petrol. Estimates had been unusually wide at 4.1% to 4.8%.

Yet the key trimmed mean measure of core inflation rose 0.3% as expected, taking the annual pace up to 3.4% and the fastest pace since the third quarter of 2024.

The Reserve Bank of Australia has already lifted its cash rate by a total 75 basis points to 4.35% in an effort to rein in inflationary pressure, which has only gotten greater since the conflict in the Middle East began.

“The data should reinforce a status quo outcome at the June RBA meeting, while still leaving the door open to further tightening in the second half of the year,” said Wee Khoon Chong, APAC macro strategist at BNY, in a note.

“Overall, we remain constructive on the AUD outlook.”

Investors are pricing in a 60% chance of a rate rise by September, with 4.60% seen as the peak this cycle.

The Aussie was 0.1% lower at $0.7157, having also dipped overnight amid uncertainty over progress in Gulf peace talks. Resistance lies at $0.7182 and $0.7220, with support at $0.7080.