Markets still imply the Reserve Bank of New Zealand (RBNZ) will hike by 25 basis points to 5.0% at its meeting next week, and see a risk of a further move to 5.25% in May. Yet, two-year swap rates suggest a peak is near, having recoiled 60 basis points in the past three weeks to stand at 4.895%. "We believe rates should peak at either 4.75% or 5%, and pause for six months," said analysts at Kiwibank. "Enough is enough, and the RBNZ has done more than enough." "Ultimately, rapid rate rises will tame inflation," they added. "Weaker global growth will put downward pressure on commodity prices and commodity currencies like the kiwi. We still forecast a drop to $0.5500 by year end." (Reporting by Wayne Cole; Editing by Jamie Freed)
Messaging: wayne.cole.thomsonreuters.com@reuters.net)) By Wayne Cole
SYDNEY, March 29 (Reuters) - The Australian dollar
dipped on Wednesday after a downside surprise in monthly
inflation data helped solidify bets on a pause in interest rates
hikes next week, and perhaps an end to the entire 10-month
tightening campaign.
The Aussie eased back to $0.6692 , after bouncing
almost 0.9% overnight and away from support around $0.6625.
Major resistance lies at the 200-day moving average of $0.6754.
The kiwi dollar held firm at $0.6255 , having also
rallied 0.9% overnight. Support lies at $0.6182 with resistance
around $0.6290.
Australian data showed annual growth in the consumer price
index (CPI) slowed to 6.8% in February, from 7.4% the month
before and under market forecasts of 7.1%.
The index is volatile and not as reliable as the quarterly
CPI series, but it is still watched by the Reserve Bank of
Australia (RBA) as a timely indicator of price pressures ahead
of its policy meeting on April 4.
"This data is another confirmation that inflation peaked in
December, and we expect headline inflation to be around 4% by
the end of the year," said Diana Mousina, a senior economist at
fund manager AMP.
"Given the weakening in domestic economic momentum, the
slowing in inflation and the risks in the global banking sector
we see the RBA keeping the cash rate on hold next week."
Futures now imply only a 5% chance of a rate rise next week,
compared to 15% before the CPI data. The market is now wagering
heavily that rates have already peaked at 3.6% and the next move
will be down, albeit not until the end of the year. Three-year bond yields are also down at 2.90% and
far below the overnight rate.
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