NZ dollar skids as markets pare back Nov hike bets; Aussie fares better

17 Oct, 2023

SYDNEY: The New Zealand dollar sagged on Tuesday as markets lengthened the odds of a November rate hike after a soft inflation report, while its Australian counterpart was supported by hawkish comments from its central bank.

The kiwi dollar skidded 0.4% to $0.5906, after rising 0.8% overnight to as far as $0.5929. It has support at Friday’s low of $0.5885, while resistance is at around $0.5950.

The Australian dollar was 0.1% higher at $0.6351, having also gained 0.7% overnight. Support is at Friday’s low of $0.6287, while near-term resistance is around $0.6385.

The kiwi also slumped 0.5% to A$0.9294, the biggest daily drop since mid-July. Data showed on Tuesday showed New Zealand’s consumer inflation hit a two-year low in the third quarter, prompting markets to pare back the chance of a hike in November to just 17%.

Two-year swap rates fell as much as 10 basis points to 5.55%, while bank bills rallied by 6-11 bps. “We believe today’s numbers significantly reduce the likelihood of any further hikes from the RBNZ,” said Jarrod Kerr, Kiwibank’s chief economist. “Whatever probably there was before today’s numbers, it’s closer to zero now.”

Australia, NZ dollars edge off lows but plenty of hurdles ahead

“We continue to call the peak in the cash rate at the current 5.5%. And we go one step further in suggesting rate cuts may become likely by May next year.”

Across the Tasman, the Reserve Bank of Australia is keeping its door open to a November hike, as policymakers await the third quarter inflation report before the RBA’s own revised economic forecasts are published.

The minutes of the October policy meeting showed on Tuesday policymakers now saw upside risks to inflation given the recent surge in petrol prices and the slow progress in lowering broad services price pressures.

They stressed that they have very low tolerance for a slower return of inflation back to target.

“Risk of RBA action appears to be rising,” said Adam Boyton, head of Australian Economics at ANZ, who had predicted an extended pause.

“Our view is that a rate rise in November would require an uncomfortably high CPI print, possibly combined with some sign of strength in the labour market.” Australian bonds took a beating on the prospects of another rate hike.

Three-year government bond yields jumped 12 basis points to 4.084%, while the ten-years rose 8 bps to 4.541%.

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