The Australian and New Zealand dollars hit four-month peaks on Wednesday as markets wagered on early U.S. policy easing, while New Zealand's central bank stunned investors by flagging a risk of further hikes at home.
The kiwi dollar shot up another 0.9% to $0.6190 NZD=D3 after the Reserve Bank of New Zealand (RBNZ) issued a very hawkish policy statement. It is 6.2% higher for the month so far and the next bull target is $0.6226.
The Aussie was now up 5.2% for November so far at $0.6669 AUD=D3 . Support lies at the 200-day moving average of $0.6583, with resistance around $0.6740.
Both had jumped when a well-known Federal Reserve hawk suddenly opened the door to the possibility of U.S. rate cuts in a few months' time, sending Treasury yields sharply lower.
In stark contrast, the RBNZ at its policy meeting discussed the "possibility of the need for increases" in rates and agreed policy would have to be restrictive for longer.
While it held the official cash rate (OCR) at 5.5%, it raised the projection for rates so the peak is now 5.7% in June 2024, up from 5.6% previously. Rates were projected to be at 4.9% by the end of 2025, compared to 4.5% previously.
That warning completely wrong-footed investors sending two-year swap rates NZDSM3NB2Y= up 15 basis points to 5.23%, while bank bill futures
0#NBB: sank as much as 11 ticks."The RBNZ delivered a hawkish surprise to markets," said Westpac economist Imre Speizer. "The OCR forecast was increased, against market expectations for a slight reduction."
"The NZD and swap rates rose in response, and these reactions are likely to extend further during the days ahead."
Over in Australia, the news was rather more dovish as the monthly consumer price index for October slowed to 4.9%, down from 5.6% in September and under market forecasts of 5.2%.
Most of the drop was due to falls in goods prices, including petrol, while holiday and travel costs also eased.
Service inflation, however, is proving far more stubborn and was a major reason the Reserve Bank of Australia (RBA) hiked rates a quarter-point this month to a 12-year top of 4.35%.
Markets imply only an 10% chance the RBA might move again at its next meeting on Dec. 5, but are 50-50 on whether a hike might come in the first half of 2024.
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