Australian dollar wins hawks over, as kiwi rues RBNZ hold

By Wayne Cole

SYDNEY, Oct 29 (Reuters) - The Australian dollar touched five-week highs on Thursday as investors wagered interest rates would rise next week for a fifth time this year, while its New Zealand counterpart remained under pressure after a surprise pause in rate hikes at home.

The kiwi took a beating on Wednesday after the Reserve Bank of New Zealand shocked investors by holding rates at 2.75% when markets had fully priced for a quarter-point increase to 3.0%.

Perhaps seeking to limit the damage to the currency, RBNZ Governor Anna Breman appeared across local media, saying further rate increases were likely and that the chance of a move in December was "high".

She also suggested the central bank could raise its projected 2027 peak rate from the current 3.2%.

"The case to hike was there, but the Bank appears to have placed significant focus on downside risks, primarily offshore," said Prashant Newnaha, an analyst at TD Securities.

"By not hiking the RBNZ has eased conditions, prompting potentially more tightening later, so we expect 25bps increases in December, February and March to 3.50%."

Markets now imply a 76% chance of a move in December and have rates peaking at 3.75% or higher.

That offered only limited support to the kiwi, which was hanging on grimly at $0.5625 , having slumped 1.0% overnight to as low as $0.5583. The retreat threatens major support at $0.5566 where a break would take it to depths not seen since the tariff rout of April 2025.

The Aussie surged 1.4% against the kiwi overnight to hit its highest level since early 2013 at NZ$1.2602 .

Against the greenback, the Aussie was trading at $0.7065 , having climbed 0.4% overnight. A sustained breach of the 200-day moving average of $0.7057 would open the way towards $0.7140 and $0.7238.

Hot inflation data and hawkish comments from the Reserve Bank of Australia have led markets to price in an 83% chance of a rate hike when the central bank meets on November 3, up from 25% a couple of weeks ago.

"The RBA will have to hike next week," said Jonathan Kearns, an economist at Challenger and a former RBA official.

"A November hike will take the cash rate to 4.85%, which should give the RBA the opportunity to pause at their December meeting," he added. "By the time the Board returns from its summer break, the economy will be slowing under the cumulative effect of 125 basis points of hikes, making further hikes in 2027 unlikely."