Oil Price Surge Pressures Aussie And Kiwi Rates
Oil prices have surged again, and this time it's put pressure on interest rates in Australia and New Zealand. The Reserve Bank of Australia (RBA) cash rate sits at 4.35%, but markets are reassessing how long it will stay high.
The combination of higher oil and a stronger US dollar is making commodities more expensive for these countries. Reuters reports that the RBA's rate hike expectations have risen, with a roughly 40% chance of a hike in August, up from about 10% just two weeks ago.
As a result, Australia's 10-year yield has reached 5.067%, while New Zealand's rate markets are leaning towards fewer cuts and more chance of renewed tightening. Central banks face a trade-off: higher energy prices can lift inflation, but they can also slow growth by leaving households and businesses with less to spend elsewhere.
The Australian dollar has been affected by these changes, despite being flat near $0.6973 against the US dollar. However, it's holding its ground versus the Japanese yen and euro due to Australia's strong energy exports.