Australia, NZ dollars wobble on war jitters, kiwi inflation data in focus

SYDNEY: The Australian and New Zealand dollars struggled to steady on Monday as more US strikes on Iran sent oil prices sharply higher, with the kiwi bracing for a key inflation report that could help decide another near-term rate hike.

The Aussie hit a four-day low of $0.6960 before reversing the losses to be 0.1% higher at $0.6988. That followed a 0.5% gain last week with resistance at the recent three-week top of $0.7021.

The kiwi dollar also slipped to an intraday low of $0.5827 before recouping the losses to be flat at $0.5844. It rallied 1.4% last week on support from a hawkish outlook for domestic rates.

The US military started a ninth straight day of attacks against Iran and Tehran in turn struck targets across the region, as hostilities in the Middle East heated up again.

Brent crude climbed 3% to cross $90 a barrel for the first time in more than a month, complicating policy for the Antipodean central banks.

The Reserve Bank of New Zealand has signalled more hikes ahead, after raising its policy rate to 2.5% earlier this month.

All eyes are on the inflation data due on Tuesday which are expected to show consumer inflation jumped to 4% in the second quarter from 3.1% before, as surging fuel prices pushed up costs.

The key focus will be non-tradeable inflation, which should indicate whether higher fuel costs are spilling over into broader domestic prices.

“A lower inflation print, specifically a lower non-tradable inflation print, will give the Reserve Bank more room to breathe. And this might mean we only see one more rate hike this year instead of two,” said Jarrod Kerr, chief economist at Kiwibank.

“A higher inflation print will give them steam to hike to 3% by the end of the year.”

Markets are 78% priced for a follow-up rate hike from the RBNZ in September, with rates peaking at 3.5% mid next year.

The latest spike in oil prices had markets pricing in a greater risk of another rate hike from the Reserve Bank of Australia this year after three moves to 4.35%. Another tightening by December is priced at 76%.

That helped the Aussie rebound 0.2% to NZ$1.1958 on Monday, bouncing away from a nearly 4-month low of NZ$1.1901.

Traders are also watching the Australian jobs data due on Thursday where forecasts are centered on a rise of 15,000 jobs in June and a steady unemployment rate at 4.4%.

Any unexpected weakness would lead markets to pare back the risk of another hike.