Kiwi, Aussie Dollars rebound as sticky New Zealand inflation pushes back rate cut expectations

New Zealand inflation rate: The New Zealand (NZ) and Australian (AUD) dollars staged a comeback on Wednesday after a recent slump, as stubbornly high inflation in New Zealand forced investors to reassess the timeline for central bank rate cuts in both countries.

Data revealed that New Zealand's consumer price inflation remained steady at 0.6 per cent in the first quarter, defying expectations of a slight decline. This persistence, particularly in domestic inflation drivers, suggests a longer path for inflation to return to the central bank's target.

Financial markets reacted by further pushing back anticipated interest rate cuts from the Reserve Bank of New Zealand (RBNZ). While some, like Nomura, see a potential cut in August, the prevailing view now anticipates October as the earliest timeframe. Previously, August was the most likely month.

ANZ analysts were more cautious, believing cuts are unlikely before 2025 due to the "sticky" inflation components. This aligns with the recent global shift in interest rate expectations, influenced by hawkish comments from the US Federal Reserve.

The RBNZ is now expected to deliver a total of only 33 basis points (bps) in rate cuts this year, down from 60 bps anticipated last week. Similarly, markets are skeptical about the Reserve Bank of Australia (RBA) cutting rates at all this year.  Traders predict a 60 per cent chance of a single cut only in December, highlighting the uncertainty surrounding future monetary policy.

The release of Australia's jobs data on Thursday will be the next key event for investors. Economists project an addition of 10,000 jobs in March, following a strong showing in February. However, they also predict a slight increase in the unemployment rate to 3.9 per cent. The continued strength of the labor market is one factor prompting the RBA's cautious stance on interest rates, leaving the door open for potential adjustments depending on economic data.

Overall, the rebound in the NZ and AUD dollars reflects a recalibration of expectations based on persistent inflation in New Zealand. Investors are now waiting for Australian jobs data to gain further insight into the RBA's policy direction.

(With Reuters inputs.)