New Zealand dollar steady as inflation miss leaves hawks unruffled
SYDNEY: The New Zealand dollar held its ground on Thursday as inflation data came in a shade under forecasts, but not enough to shake expectations for a rate hike next week, while the Australian dollar hovered near three-week highs. The figures showed consumer prices rose 0.7% in the third quarter, nudging the annual pace down to 3.7% from 4.1%. However, much of the slowdown reflected a fall in…
The New Zealand dollar remained stable on Thursday as inflation data fell short of expectations but didn't prompt a rate hike, according to Australian and New Zealand markets. Consumer prices climbed 0.7% in the third quarter, reducing the annual inflation rate to 3.7% from 4.1%. However, fuel prices' decline fueled this decline, with inflation rates anticipated to surpass 4% again this quarter.
Core inflation figures were also high, leading investors to believe the Reserve Bank of New Zealand (RBNZ) will raise the official cash rate by 25 basis points to 3.0% during the October 28 meeting. Analyst Satish Ranchhod from Westpac anticipates the RBNZ will take this approach, rather than pausing and reassessing before the December hike.
The Australian dollar hovered close to three-week highs, up to $0.7035, after a 0.4% rise overnight in its fourth successive day of gains. Market sentiment suggests further interest rate hikes next year, reaching up to 3.75%, well above the RBNZ's projected 3.2%. This increased expectation of tightening helped maintain the kiwi dollar at $0.5705, following a 0.3% overnight increase to a one-month peak. Resistance levels are around $0.5750, with support at the recent 18-month low of $0.5566.
Meanwhile, the Australian dollar enjoyed a boost on Wednesday when Deputy Governor Andrew Hauser of the Reserve Bank of Australia (RBA) warned that inflation outlooks were "materially worse" than projected due to high oil prices and a lack of domestic surplus capacity. This led to a 64% probability of a quarter-point rate hike in November, up from previous expectations.
RBA rates are currently at a 15-year high of 4.6%, following four rate hikes this year. Economist Andrew Boak of Goldman Sachs noted that despite the 100 basis points tightening so far this year, risks to inflation expectations remained upward, making an additional hike in November more likely than not. Goldman Sachs had previously expected the RBA to hold steady at 4.6%.
The upcoming consumer price report for the third quarter is expected next week, with analysts predicting core inflation could rise by 1.0%, pushing the annual pace to 3.6% and surpassing the RBA's target band of 2% to 3%.
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