Kiwi dollar bounces as RBNZ warns of inflation risks, Aussie steady

By Reuters News

By Stella Qiu

SYDNEY, Sept 22 (Reuters) - The kiwi dollar perked up on Tuesday after its top central banker warned of higher inflation from oil prices, clawing back some lost ground against the Aussie, which had gained on bets of an imminent rate hike there.

The kiwi dollar bounced 0.4% against the greenback to $0.5736 , having hit an 11-week low of $0.5695 earlier in the session. It has been on the slide since the Reserve Bank of New Zealand lifted rates to 2.75% earlier this month but projected a slower and more limited tightening cycle than markets had wagered on.

Having fallen over 4% from its August peak of $0.5988, the kiwi appears to be finding support around $0.5705.

That was why the Aussie retreated from a 13-year high on the kiwi and was last down 0.3% at $1.2409.

RBNZ Governor Anna Breman warned on Tuesday that if recent gains in oil prices persisted, it would lead to higher inflation than previously forecast, adding that the economic recovery was expected to strengthen and broaden.

Markets ramped up bets that the RBNZ will have to hike interest rates a third time to 3.0% next month to 75%, up from 60% a day earlier. A total of four hikes are now priced in by the second half of next year, though the expected terminal rate of 3.75% would still be lower than in many other developed economies.

Analysts at the National Australia Bank see the kiwi continue to track sideways for the next two quarters in a range of 55 cents to 60 cents.

"A significant NZ tightening cycle has always been part of the expected playbook, but the potential positive impact on the NZD has been offset by evolving expectations that global rates will be higher than previously anticipated," they said in a note.

The Aussie, meanwhile, was steady at $0.7121 , after an overnight rally to $0.7140 lost momentum and it finished 0.1% lower against the US dollar. Its recent uptrend has been dented by a hawkish repricing of the US rate outlook, with traders now watching whether support at the September low of $0.7075 can hold.

Reserve Bank of Australia Governor Michele Bullock on Tuesday reiterated that inflation risks may be materialising but stopped short of providing any guidance on whether interest rates will move up for a fourth time this year next Tuesday.

Markets have priced in a 95% chance the RBA will hike to 4.60% when it meets next week, with a 40% risk of another rise in November to 4.85%.

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