Australian dollar gets limited support from well-flagged rate hike

SYDNEY: The Australian dollar got only fleeting support on Tuesday after the country’s central bank lifted interest rates to a 15-year peak and indicated it was ready to do more if needed to curb stubborn inflation.

Wrapping up its September board meeting, the Reserve Bank of Australia board voted unanimously to raise its cash rate by 25 basis points to 4.60%, the fourth hike this year.

Markets had been fully priced for the move, limiting the immediate reaction.

Futures imply a 44% chance of another move in November, with December odds at 60%. Consumer price data for August is due on Wednesday and forecast to show an acceleration to 4.1% from 3.5%, in part due to a jump in fuel costs.

Core inflation is seen staying at 3.6%, well above the RBA’s target range of 2% to 3%.

“That release will be an important gauge of the extent of domestic price pressures and will be a key input into the policy outlook,” said Katherine Palmer, head of fixed income strategy at BlackRock Australia.

“November’s RBA meeting is live, particularly given today’s unanimous decision.”

The Aussie was flat at $0.7014, having steadied above $0.7000 support overnight. Resistance lies at $0.7043 and $0.7139, with major support down at $0.6922. Yields on 10-year bonds were steady at 5.416%, near highs last seen in mid-2011.

Bonds have been swept along in a global selloff but have managed to outperform US Treasuries, shrinking the premium on 10-year debt to 19 basis points from 32 basis points at the start of the month.

The kiwi dollar was a shade lower at $0.5656, as $0.5650 support held for now.

A break would threaten the June low at $0.5627, with resistance around $0.5687 and $0.5748.

Markets imply a 78% chance the Reserve Bank of New Zealand will raise rates by a quarter point to 3.0% when it meets on October 28, and move again by February.

Rates are seen peaking near 4.0% late next year, far above the RBNZ’s own projection of 3.20%.

Yields on 10-year bonds have jumped over the past week to hit their highest since late 2023 at 5.178%, but again have not suffered as much as Treasuries.

The New Zealand government reported a smaller budget deficit on Tuesday and trimmed the amount of debt it will issue in 2026/27 by NZ$4 billion to NZ$30 billion.

The borrowing programme out to 2030 was cut by NZ$15 billion.