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AUD/NZD pressured by NZ inflation and ahead of jobs data

A New Zealand CPI print showed inflation running above the RBNZ forecast, while the next employment report will help confirm whether the labor market can sustain further NZ tightening.

Reported · Written up by our desk · Major Pairs

Australian markets are broadly pricing in that the Reserve Bank of Australia has finished tightening for the year, leaving focus on New Zealand policy as a key driver of AUD/NZD, Action Forex said.

According to Action Forex, New Zealand’s second-quarter CPI rose 4.1% year over year, above the RBNZ’s 3.9% forecast. Non-tradable inflation also stayed elevated at 3.4%, reinforcing the view that domestic price pressures are more persistent than expected.

Action Forex added that stronger sentiment since then has further supported the inflation picture, with July’s ANZ Business Confidence rising to 56.1 from 36.6. The upcoming New Zealand employment report is therefore framed as a test of whether the labor market remains resilient enough to keep the RBNZ’s existing tightening bias intact, rather than as a new hawkish turn by itself.

The outlet said an in-line employment report would likely leave the RBNZ’s economic assessment largely unchanged, but a stronger-than-expected result could boost expectations for another hike as early as September and push the Official Cash Rate toward the upper end of the 2.75% to 3.00% range. A materially weaker labor market, by contrast, would create more doubt that higher borrowing costs are tightening conditions quickly enough.

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