New Zealand dollar slugged by inflation surprise, Aussie hangs on
- The kiwi dollar lost 0.5% to a two-week low of $0.5829, having snapped support at $0.5850
SYDNEY: The New Zealand dollar slid on Thursday after a surprisingly low reading on inflation expectations stirred doubts about the need for aggressive rate hikes, while its Australian counterpart drew comfort from the risk of tightening at home.
The kiwi dollar lost 0.5% to a two-week low of $0.5829, having snapped support at $0.5850.
The next bear targets are $0.5762 and $0.5627.
The Aussie also eased to $0.7048, after touching a 10-week top of $0.7091 overnight.
Support lies around $0.7022, with resistance at $0.7088 and $0.7200.
The kiwi retreat came after the Reserve Bank of New Zealand released its survey of inflation expectations, showing the one-year outlook fell sharply to 2.6%, from 3.4%, taking it back to where it was before the war in Iran drove up fuel prices.
The two-year outlook eased to 2.34%, from 2.35%, suggesting expectations remain anchored and there is less risk of the oil shock feeding through to broader inflation in the country.
“This will be welcome news for the RBNZ,” said Satish Ranchhod, a senior economist at Westpac. “But core inflation was at firm levels even before the Middle East conflict and business surveys point to ongoing pressures on operating costs.”
“We’re forecasting two more 25bp hikes this year, most likely at the September and December meetings.”
Investors are still wagering heavily on a September rise in the 2.5% cash rate, in part because the central bank has repeatedly flagged the need to make policy less stimulative.
Yet, key 2-year swap rates did fall 4 basis points after the data to a three-week trough of 3.5857% on bets that rates might not have to rise as much as first thought.
Across the Tasman, Reserve Bank of Australia Assistant Governor Christopher Kent used a media appearance to emphasize that the risks on inflation and rates were very much to the upside.
The central bank held its cash rate at 4.35% earlier this week, having already hiked three times this year.
Markets are pricing around a 70% chance of one last move to 4.60% by early next year.
“We expect that the RBA will continue its strategy of trying to minimise any cycle in unemployment while leaving little buffer to upside surprises,” said Sally Auld, chief economist at NAB.
“As such, we expect the board to remain on hold before gradual normalisation towards less restrictive policy from mid next year.”