NZ dollar skids as RBNZ flags loose policy, undershoots market hawks

By Wayne Cole

SYDNEY, Feb 18 (Reuters) - The New Zealand dollar slipped on Wednesday after the country's central bank held cash rates steady and said policy would likely stay accommodative for some time, while allowing some scope for a hike late this year.

The kiwi dollar dropped 0.8% to $0.6002 NZD=D3, breaching a trough of $0.6005 hit overnight. Support now comes in at $0.5929, with resistance at the recent top of $0.60925.

The Reserve Bank of New Zealand wrapped up its first meeting of the year by holding rates at 2.25%, as widely expected, saying it was confident inflation would fall back into its target range and see policy "gradually normalise."

It projected rates would average 2.4% in the fourth quarter, up from 2.3% previously, and 2.5% in the first quarter of 2027.

Markets had been pricing in an even more hawkish outlook and reacted by scaling back the chance of a first rate rise before October, which was now put at 70%. 0#NZDIRPR

"We expect inflation to ease and the economy to gain enough momentum to support a gradual withdrawal of support around November," said Shannon Nicoll, an associate economist at Moody's Analytics.

"But the central bank will keep a close eye on the data to ensure it doesn't hike too early or too late."

The Aussie dollar eased 0.2% to $0.7074 AUD=D3, having bounced from a low of $0.7028 overnight. Resistance lies at last week's three-year peak of $0.71465, with major support down at $0.6897.

The Reserve Bank of Australia has already hiked its rates a quarter point to 3.85% and could well tighten further should inflation continue to prove stubborn.

Wage figures out Wednesday showed annual growth running in a groove at 3.4%, much where it has been for over a year.

Yet jobs data due on Thursday are forecast to show the labour market remained resilient in January, while consumer price data out next week are likely to see core inflation stay around 3.3% and above the RBA's 2% to 3% target band.

"We expect the RBA to raise the cash rate in May, reflecting the resolve it signalled in February and the upward revisions to both the output gap and the neutral rate," said Trent Saunders, a senior economist at CBA.

"Even if quarterly trimmed-mean inflation comes in slightly softer than the RBA's forecasts, that alone would be unlikely to deter the Board from proceeding with another increase."