The New Zealand dollar took a spill on Tuesday after inflation expectations in the country slumped to their lowest on record, piling pressure on policy makers for further cuts in interest rates. The kiwi dollar sank half a US cent to $0.6617 in a matter of minutes and bill futures rallied as the market narrowed the odds on an easing as early as March.
A Reserve Bank of New Zealand quarterly survey on the economic outlook showed respondents expected inflation to slow to just 1.09 percent on a one-year horizon. That was down from 1.51 percent three months ago and the lowest result since the survey began in 1987. The outlook for inflation on a two-year horizon also slowed sharply to 1.63 percent, the lowest since 1994.
The Australian dollar rose sharply on its kiwi cousin to stand at NZ$1.0815, from $1.0745. The Aussie had already got a lift from a pullback in the safe-haven yen as global equity and commodity markets bounced from recent steep falls. The Aussie popped up to 82.19 yen, having recouped four yen since it hit a four-year trough last week. A break of 82.97 yen, the 61.8 percent retracement of this year's fall would target 86.36, the 2016 peak. It also rose to $0.7168, from an early $0.7142 and further away from a low of $0.6973 touched last week. A break of $0.7242 might see a test to 73 cents, a level not visited since early January.
New Zealand government bonds recouped early losses to be mostly flat on the day. Australian government bond futures edged away from multi-month peaks, with the three-year bond contract off 2 ticks at 98.150. The 10-year contract eased 1 tick to 97.4750, while the 20-year contract shed 2 ticks to 96.9300.