The high-yielding New Zealand and Australian dollars held fairly strong as inflation pressures leave both the RBNZ and RBA with a hawkish bias. As was widely expected, the RBNZ left rates steady for the second consecutive month at a record high of 8.25 percent, however, the monetary policy statement signaled a slight tightening bias.
Indeed, RBNZ Governor Alan Bollard noted that the “labor market remains tight, domestic income growth continues to expand on the back of strong commodity prices, and core inflationary pressures persist.” While Bollard also noted that there were signs that “the housing market is moderating,” multiple upside inflation risks suggest that a rate cut is not in the cards in the near-term. Meanwhile, core inflation in Australia accelerated at the fastest pace in 16 years during Q3, sparking speculation that the RBA will hike on November 7th. However, there is still a chance that the central bank will hold off on tightening monetary policy, as such a move would likely reduce the odds that Prime Minister John Howard will win the upcoming Federal Election on November 24th.