New Zealand dollar holds steady as inflation undershoots forecasts but hike bets remain

what happened

The New Zealand dollar was little changed on Thursday as inflation data landed a touch below expectations. The miss was not large enough to undermine the view that the central bank will lift rates next week. The Australian dollar hovered near three-week highs, Reuters reported.

Consumer prices rose 0.7% in the third quarter, and the annual rate slowed to 3.7% from 4.1%. However, much of that slowdown reflected lower fuel prices, which have since rebounded sharply, so inflation is expected to climb back above 4% this quarter. Core measures also remained elevated, and markets price a 100% chance of a quarter-point increase to 3.0% when the Reserve Bank of New Zealand meets on October 28.

The kiwi traded near 0.5705 dollars, with resistance around 0.5750 and support at the 18-month low of 0.5566. The Australian dollar edged up to 0.7035, rising 0.4% overnight in its fourth straight session of gains.

why it matters

For currency markets, the link between the RBNZ and the RBA matters. Investors are pricing tighter policy in both countries. After Deputy Governor Andrew Hauser said inflation risks were "materially worse" than projected, the odds of a November rate rise in Australia climbed to 64%. High oil prices and limited spare capacity at home support those expectations.

market impact

NZD/USD and AUD/USD: expectations of tighter RBNZ and RBA policy support both currencies

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instruments