New Zealand dollar slugged by inflation surprise, Aussie hangs on

Business Recorder reported that the New Zealand dollar declined 0.5 per cent to $0.5829, a two-week low, after a survey of inflation expectations surprised to the downside. The Reserve Bank of New Zealand's data showed the one-year outlook falling to 2.6 per cent from 3.4 per cent, back to the level seen before fuel prices climbed during the Iran conflict. The two-year measure edged lower to 2.34 per cent, suggesting expectations remain anchored.

Markets still expect a September increase in the 2.5 per cent cash rate, partly because the central bank has repeatedly said policy needs to be less stimulative. Even so, two-year swap rates fell 4 basis points to a three-week trough of 3.5857 per cent on bets that rate rises may be smaller than first expected. Westpac's Satish Ranchhod called the data encouraging for the RBNZ but noted that core inflation was firm before the Middle East conflict.

Across the Tasman, the Australian dollar eased to $0.7048 after reaching a 10-week high of $0.7091 overnight. Reserve Bank of Australia assistant governor Christopher Kent said inflation and interest rate risks were tilted to the upside, and the RBA left its cash rate on hold at 4.35 per cent earlier this week after three hikes this year. NAB chief economist Sally Auld expects the board to stay on hold before a gradual shift toward less restrictive policy from mid next year.