Australian, NZ dollars hold steady; hawkish RBA lends support

While the RBA left rates unchanged at 4.35% on Tuesday, Governor Michele Bullock struck a far more hawkish tone in a media conference, saying she felt it was quite possible they would need to hike again should inflation not recede as hoped.

That highlights the importance of third-quarter consumer price figures due in late October where the RBA is looking for core inflation to undershoot last year's chunky 1.0% gain.

"The RBA implied forecasts point to a run rate of 0.84%, 0.81%, 0.72% and 0.64% in the year from Q3," said Belinda Allen, head of Australian economics at CBA. "These will be the key reference points in coming quarters to ascertain if upside risks to inflation are eventuating."

"A rate hike in November remains a risk if inflation is higher than expected and/or we don't see growth slow as anticipated," she added. "We have two rate cuts in our forecast in 2027, in May and August."

Markets currently have no cuts at all implied for next year. Indeed, analysts suspect one reason the RBA sounded so hawkish this week was to stop the market from pricing in cuts and perhaps easing financial conditions prematurely.

The rate warning was enough to keep the Aussie firm at $0.7062 AUD=D3, having edged 0.1% higher in the previous session. A break of resistance in the $0.7078/88 band would open the way to $0.7200, while support lies at $0.7022 and $0.6923.

The kiwi dollar was also steady at $0.5881 NZD=D3, after hardly budging overnight. The currency has been trading in a tight range of $0.5861 to $0.6907 for more than a week and a break in either direction would likely lead to a sharp move.

The Australian and New Zealand dollars traded sideways on Wednesday as investors counted down to an influential reading on U.S. inflation, while support from Reserve Bank of Australia's hawkish rate outlook helped underpin the Aussie.