SYDNEY: The Australian and New Zealand dollars were again buffeted by uncertainty over US tariff policy on Wednesday, while kiwi bonds rallied as a benign reading on inflation left the door wide open to more rate cuts there.
The headline consumer price index rose 0.5% in the December quarter, leaving the annual pace at 2.2% and well within the Reserve Bank of New Zealand’s 1% to 3% target band.
Importantly for the central bank domestically-generated inflation continued to slow, as did the trimmed mean and weighted median measures.
The result only reinforced market wagers for a half-point cut in the 4.25% cash rate when the RBNZ meets on Feb. 19.
Investors see rates settling at 3.0% or 3.25% by the end of the year.
Yields on 10-year bonds hit a one-week low at 4.653% after the data, well down on a recent top of 4.888%.
“Overall inflation is close to 2%, and both core and domestic inflation are easing,” said Satish Ranchhod, a senior economist at Westpac.
“We expect that the RBNZ will deliver another 50bp cut when they next meet.”
“We expect inflation will remain well contained over the year ahead,” he added.
“However, the risks for inflation aren’t all to the downside, especially given the rocky global environment and downside risk for the New Zealand dollar.”
Australia, NZ dollars hit two-week highs on Trump tariff delay
The kiwi tumbled almost 12% last quarter as the domestic economy slipped into recession and talk of US tariffs hit trade-exposed currencies.
Indeed, the Aussie and kiwi took a knock on Wednesday when President Donald Trump mentioned tariffs on China could be imposed on Feb. 1, while reiterating threats to slap tariffs on the European Union.
No details were offered, leaving markets wondering if this was merely a bargaining ploy.
The Aussie eased 0.2% to $0.6262, but remained well above a recent five-year trough of $0.6131. It now faces tough resistance around $0.6302.
The kiwi dollar dipped 0.3% to $0.5663, but again held above its recent trough of $0.5542. Resistance lies around $0.5693.
Australia’s fourth-quarter consumer price report is due next week and analysts are hopeful core inflation will slow enough to green light a rate reduction from the Reserve Bank of Australia when it meets on Feb. 18.
Futures imply a 78% chance of a quarter-point cut in the 4.35% cash rate, and imply a relatively shallow easing cycle of just 75 basis points overall.
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