Australia, NZ dollars hold gains for year as rate tide turns

By Wayne Cole

SYDNEY, Dec 31 (Reuters) - The Australian and New Zealand dollars were ending the year on a steady note on Wednesday, clutching solid annual gains on their U.S. peer as investors wagered the next move in interest rates at home would be up.

The Aussie was flat at $0.6695 AUD=D3, just off the recent 14-month high at $0.6727. That left it up more than 8% for the year and a long way from the $0.5910 trough hit during the tariff-driven market mayhem of April.

The next major targets are the 2024 peak at $0.6943, followed by $0.7158.

The kiwi dollar idled at $0.5787 NZD=D3, having gained a more modest 3.5% for the year. Support lies at $0.5736, with resistance at the recent three-month top of $0.5853.

The Aussie has been rallying as surprisingly hot readings on inflation sparked speculation the Reserve Bank of Australia could hike the 3.6% cash rate as soon as its next policy meeting on February 3.

Of the four major local banks, CBA and NAB are tipping hikes in February, while ANZ and Westpac see rates on hold for all of 2026 though with risks tilted to a tightening.

Markets imply around a 30% chance of a rise in February, with March at 50% and May around 80%. 0#AUDIRPR

Much will depend on whether inflation cools after a spike in the third quarter. Monthly consumer price data for November are due next week and analysts hope for some easing in core inflation which hit 3.3% in October, the highest since mid-2024.

The full CPI report for the December quarter is due on January 28 and a core increase of 0.9% or more would pile pressure on for a quick hike. Analysts assume a reading of 0.7% might stave off a tightening, with 0.8% a line-ball call.

The Reserve Bank of New Zealand delivered what is likely to be its last rate cut of the cycle in November, having eased by a steep 225 basis points in little more than a year.

A recent pickup in domestic data saw investors toy with the idea of a hike by mid-2026, only for the new head of the central bank to push back aggressively.

Markets now show scant chance of an increase in the 2.25% cash rate until July, which is priced around 40%. September has an implied chance of 70% and a quarter-point easing is fully priced for October. 0#NZDIRPR