Kiwi dollar holds steady ahead of RBNZ, Aussie awaits inflation test

By Reuters News

By Stella Qiu

- The kiwi dollar was little changed on Monday ahead of a central bank decision widely expected to see interest rates rise for a third time this year, while the Aussie awaited inflation data that could make or break the case for an imminent rate hike.

The kiwi was steady at $0.57, after climbing 0.8% last week for a second weekly gain. That has partly offset a seven-week slide that began at the end of August. Resistance is at a one-month top of $0.5709.

The Reserve Bank of New Zealand is one of several major central banks, including the Federal Reserve, meeting this week. Markets are fully priced for a third rate hike this year on Wednesday, taking the cash rate to 3.0%, but the focus will be on whether policymakers signal another move in December.

Westpac now expects the RBNZ to deliver a rate hike this week, citing the significant upside risks to near-term inflation relative to the RBNZ's previous forecast, and leave the door open to more increases.

"We expect the RBNZ will end up delivering another 25 (basis point) hike in December, followed by a further hike in February," said Satish Ranchhod, a senior economist at Westpac.

"That would take the OCR to 3.5%, roughly where the RBNZ estimates the neutral rate to be. At that point, we expect the RBNZ to slow the pace of rate increases."

Across the Tasman Sea, the Aussie was flat at $0.7030 , having gained 1.3% last week to bounce away from a 15-week low of $0.6895. Resistance is around the 200-day moving average of around $0.7050.

The currency has found support as hawkish rhetoric from the Reserve Bank of Australia lifted market pricing for a fifth rate hike this year to 65% next Tuesday, even as the unemployment rate climbed to a five-year high of 4.7%.

Much is riding on the quarterly inflation report also due on Wednesday. Forecasts are centred on a quarterly rise of 1% in the trimmed mean measure of inflation, with the annual rate stuck at 3.6%, above the RBA's target range of 2% to 3%.

"While our baseline remains for the RBA to leave the cash rate unchanged, the decision will depend heavily on the outcome and composition of the CPI print," said Trent Saunders, an economist at the Commonwealth Bank of Australia.

RBA Governor Michele Bullock and other senior officials are due to appear before lawmakers on Wednesday where they could face questions on the inflation data and what it means for the outlook for interest rates.

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