NZ dollar falls ahead of RBNZ, Aussie braces for CPI test -February 25, 2024 at 09:16 pm EST

SYDNEY, Feb 26 (Reuters) – The New Zealand dollar fell
on Monday as traders pared back bets the central bank could
surprise with an interest rate hike this week, while the
Australian dollar was also vulnerable ahead of a monthly
inflation test.

The kiwi fell 0.5% to $0.6164, after jumping 1.2%
last week on risk that the Reserve Bank of New Zealand (RBNZ)
may hike this week. However, some of that risk faded on Monday,
reflected in the two-year swap rate falling six
basis points from a three-month top to 5.1850%.

The Australian dollar slipped 0.2% to $0.6551,
having ended last week little changed. The currency is
struggling to break its 200-day moving average of $0.6563.

The two face a pivotal week with the New Zealand’s central
bank meeting and Australia’s inflation data both on Wednesday.
Inflation readings in the U.S. and Europe also represent risk
factors.

The majority of economists polled by Reuters expects the
Reserve Bank of New Zealand to hold rates steady at 5.5%, but
still some did note the possibility of a hike given the bank’s
tendency to surprise.

“It’s not our central case, but another hike from the RBNZ
can’t be completely ruled out,” said Paul Bloxham, chief
economist at Australia, NZ & Global Commodities.

“Although we expect them to be hawkish, and to project the
possibility that they may have to hike again, we think the case
for holding steady will again prove stronger than that for
hiking.”

On Wednesday, the release of the monthly Australian consumer
price index (CPI) print for January will provide the latest
indication of the inflationary pulse.

Economists expect inflation to have slightly picked up to
3.5% from 3.4% and any miss could revive the chance of another
interest rate hike from the Reserve Bank of Australia.

Australian government bond yields also fell on Monday. The
three-year bond yield dropped 7 basis points to
3.733%, while the 10-year slumped 10 bps to 4.114%.
(Reporting by Stella Qiu; Editing by Christopher Cushing)