The key 2-year swap rate NZDSM3NB2Y= climbed 12 basis points to a two-month top of 3.6701%, to be up a steep 34 basis points in just four sessions.
That helped lift the kiwi dollar 0.5% to $0.5778 NZD=D3, reversing a 0.3% dip suffered overnight. A break of $0.5790 resistance would open the way to $0.5865.
The Aussie was flat at $0.6918 AUD=D3, having slipped 0.5% overnight after failing to clear resistance at $0.6970. Major support lies at $0.68665 and $0.6834. It fell even more on the kiwi to hit the lowest since the end of March at NZ$1.1971 AUDNZD=.
RBNZ economist flags inflation risks
RBNZ Chief Economist Paul Conway emphasised the importance of keeping inflation expectations anchored and warned the fallout from the Middle East conflict could require more aggressive tightening.
"From our perspective, we interpreted the speech as clearly hawkish, particularly given it was delivered by one of the most dovish members of the Monetary Policy Committee," said Andrew Boak, an economist at Goldman Sachs.
"We continue to expect rates to rise a further 25bp to 2.75% in September, and today's speech highlights the risk of additional near-term hikes."
Markets imply around an 80% chance of an increase at the next RBNZ meeting on September 2, and rates of at least 3.0% by year-end.
Kiwi rises as RBNZ rate-hike bets build
The New Zealand dollar rallied on Tuesday as investors ramped up wagers for rate hikes there and helped buck a global reversal in risk assets, which weighed on its Australian counterpart.
A further surge in oil prices combined with a hawkish outlook by a top policy maker from the Reserve Bank of New Zealand to send short-term swap rates to two-month peaks.
Australian rate expectations remain subdued
Investors still doubt the Reserve Bank of Australia will raise the 4.35% cash rate again in the near term, having already hiked three times since February.
A survey of businesses out on Tuesday showed conditions remained soft in June, even before the latest outbreak of hostilities in the Gulf, while cost pressures eased somewhat.
A separate survey showed the mood among consumers improved a little in July, but again that will be challenged by rising fuel prices.
Markets imply only a 20% chance the RBA could increase rates at its next board meeting in August, and around a 60% probability by December.
TLT•
