Australian dollar hits five-week high as markets bet on RBA hike

what happened

Reuters reports that the Australian dollar reached a five-week high on Thursday as investors bet the Reserve Bank of Australia will raise rates at its meeting next week, which would be a fifth increase this year. The New Zealand dollar, by contrast, remained under pressure after the Reserve Bank of New Zealand unexpectedly kept its rate at 2.75%, even though markets had almost fully priced in a rise to 3.0%.

RBNZ Governor Anna Breman told local media that further rate increases were likely and rated the chance of a December move as high. TD Securities analyst Prashant Newnaham said the pause had eased conditions and would likely lead to tighter policy later. The kiwi fell back to $0.5583, while AUD/NZD climbed to 1.2602.

Against the US dollar, the Aussie rose to $0.7065 on hot inflation data and hawkish comments from the RBA. Markets now put the chance of a hike on November 3 at 83%, up from 25% a couple of weeks ago.

why it matters

Central bank signals are diverging: Australia is moving toward tightening while New Zealand has paused, shifting the rate gap in favour of the Aussie. Challenger economist Jonathan Kearns expects the RBA to pause in December after a November hike to 4.85%.

market impact

AUD and NZD: a wider rate gap favours the Aussie and weighs on the kiwi

• ▲AUD/USD pressure up — expectations of an RBA rate hike support the Australian dollar
• ▼NZD/USD pressure down — the RBNZ pause reduces the appeal of the New Zealand dollar
• ▲AUD/NZD pressure up — the rate gap widens in favour of the Australian dollar

tags

instruments