Kiwi dollar soars as RBNZ signals it is done easing, Aussie climbs on inflation risk

By Stella Qiu

SYDNEY, Nov 26 (Reuters) - The New Zealand dollar surged on Wednesday after its central bank cut rates but signalled it was done easing, disappointing doves who had bet on a larger move and sending the two-year swap rates to two-month highs.

The Aussie also gained after a hot inflation reading that had markets giving up hopes for more policy easing and even flirting with the idea of a hike. It, however, lost 0.7% to the kiwi, retreating from 12-year tops.

The kiwi dollar NZD=D3 jumped 1.2% to $0.5690, but sellers emerged around $0.5691, which was proving to be the near-term resistance level. It now sits well above the seven-month trough of $0.5581, with the move on Wednesday brightening the technical outlook.

The Reserve Bank of New Zealand cut interest rates to 2.25% as widely expected but the cut was hawkish as a 50-basis-point move was not discussed. The forecast track for the cash rate also suggested just a 20% chance of another cut in the easing cycle.

"It is notable that a vote was required because one Committee member strongly preferred not to cut," said Sharon Zollner, chief New Zealand economist at ANZ.

"Unless the economy is hit with some kind of unexpected negative shock, the OCR is not going any lower," said Zollner, referring to the Official Cash Rate.

That sent two-year swap rates NZDSM3NB2Y= sharply higher, up 8 basis points to 2.6653%, the highest since late September. Markets moved to scale back expectations of one more rate cut next year to 16% and now saw the cash rate largely steady throughout 2026.

The Australian dollar AUD=D3 rose 0.5% to $0.6502, back above 65 cents for the first time in two weeks. It also broke above key resistance at the 200-day moving average of $0.6462.

The closely watched release of the complete monthly inflation data showed Australia's consumer inflation accelerated for a fourth straight month in October to 3.8%, well above the central bank's target band of 2%-3%.

The trimmed mean measure of underlying inflation also picked up to 3.3%, above forecasts.

"This suggests that the strong rise in core inflation in Q3, which surprised the market and the RBA tangibly to the upside, appears to have persisted into October," said Paul Bloxham, chief economist, Australia, NZ & Global commodities at HSBC.

"Our central case sees the RBA on hold through 2026, with the rate hikes beginning in early 2027. Today's print adds to the risk that rate rises could be needed earlier than that."

Swaps imply just an 8% probability that the RBA can still cut rates one more time in May next year, down from 40% before, and there is now a 40% chance of a rate hike by the end of next year. 0#AUDIRPR

Three-year government bond yields AU3YT=RR rose 11 basis points to 3.855%, the highest since February. Ten-year bond yields AU10YT=RR climbed 7 bps to 4.507%.