New Zealand, Aussie dollars the losers as RBNZ goes all-in for growth

By Wayne Cole

SYDNEY, Aug 22 (Reuters) - The Australian and New Zealand dollars nursed stinging losses for the week on Friday as markets baked in lower interest rates at home, while having second thoughts about a U.S. easing in the near term.

The Reserve Bank of New Zealand's sudden embrace of stimulus when cutting rates on Wednesday has seen investors price in two more easings to 2.5%, down from 2.75% at the start of the week.

That dovish shift from policy makers came despite a revival in consumer price inflation which could hit 3.0% or more by year-end, the very top of the RBNZ's target band of 1% to 3%.

"What we have here is a change in strategy where the RBNZ is choosing to look through the CPI inflation outlook for the next six months and instead take action to underwrite an improvement in growth," argues Kelly Eckhold, chief NZ economist at Westpac.

"The RBNZ likely won't move away from this insurance strategy until totally comfortable that the economy is on track to grow at rates that will eliminate the current spare capacity."

This sea change swept through debt markets and took key two-year swap rates to their lowest since early 2020 at 2.87% NZDSM3NB2Y=, with scope for more given the RBNZ's desire to support demand through lower mortgage rates.

"Swaps should gravitate towards 2.60%, with the curve biased to steepen, and we expect NZ rates to outperform Australia and the U.S.," said Prashant Newnaha, senior Asia-Pacific rates strategist at TD-Securities.

He now sees the RBNZ cutting to 2.5%, and staying there for a whole year or more. 0#NZDIRPR

"We concur with the Bank's unemployment rate forecast that it's likely to sport a 5% handle for most of 2026," he added. " We don't expect the RBNZ will be actively considering hiking with a 5% unemployment rate."

The central bank has also welcomed a fall in the kiwi as added stimulus, contributing to its 1.8% loss for the week so far. The currency was last at a four-month low of $0.5812 NZD=D3, and uncomfortably close to support at $0.5800.

The Aussie was also looking vulnerable at $0.6427 AUD=D3, having shed 1.2% for the week to touch a two-month trough of $0.6415. Major support stands at $0.6373.

Markets remain almost fully priced for the Reserve Bank of Australia to cut its rates by another quarter-point to 3.35% in September, and ultimately take them to 3.10%. 0#AUDIRPR