Australian Dollar declines against New Zealand Dollar despite RBA rate hike

• AUD/NZD depreciates as the Australian Dollar weakens following the widely expected RBA 25-basis-point rate hike in November.
• New Zealand Building Permits fell 7.9% in September, though annual consents rose 17.8% to 41,091 homes.
• Traders fear a December RBNZ rate hike, but falling oil prices limited broader market declines.

AUD/NZD extends its losses for the second successive day, trading around 1.2430 during Asian hours on Tuesday. The currency cross loses ground as the Australian Dollar (AUD) depreciates after the Reserve Bank of Australia (RBA) decided to raise its cash rate to 4.85%, from 4.6%. This is the fifth rate hike in 2026 and the highest level since 2008.

The RBA board reported that inflation remains elevated and broad-based, prompting staff to revise forecasts materially higher. Inflation is now expected to stay above 3% over the coming year and will not return to the top of the 2% to 3% target band until late 2027, around three quarters later than previously projected.

While higher fuel and commodity prices linked to the Middle East conflict have contributed to this outlook, the RBA also highlighted tighter domestic capacity pressures. Firms continue to pass on rising costs to consumers, and several measures of inflation expectations have moved upward. Additionally, surging AI-related investment is driving rapid price growth across technology goods.

Seasonally adjusted Building Permits in New Zealand fell 7.9% month-over-month in September, fully reversing the downwardly revised 5.3% rise recorded in August. Despite the monthly drop, annual activity showed significant growth: in the year ended September 2026, a total of 41,091 new homes were consented, representing a 17.8% increase compared to the year ended September 2025.

Meanwhile, market sentiment reflected ongoing concern over potential monetary policy tightening. Traders remained wary of signals indicating a possible interest rate hike at the Reserve Bank of New Zealand's (RBNZ) upcoming December meeting as the central bank continues its efforts to curb inflation. However, a sharp slump in oil prices helped ease broader inflation worries, ultimately limiting market declines.

RBNZ holds fire as subdued demand tempers inflation rebound

Rabobank’s Jane Foley highlights that the RBNZ struck a cautious tone at its latest policy meeting, noting that “while annual inflation is expected to increase to 4.4% in the December quarter (largely on the back of fuel), … domestic demand remains subdued.” She points out that this assessment of weak underlying demand, even alongside a projected near-term rise in headline inflation, helped justify the central bank’s decision to leave rates unchanged despite market expectations for a hike.