The Reserve Bank of Australia lifted its cash rate to 7.0%, on the back of higher than expected inflation outcomes. In the statement, Governor Stevens stuck firmly to the uncertainty line while admitting that even this lift in rates may not be sufficient to tame inflation. Continued strength in domestic demand is likely to push them to increase rates again.
For New Zealand this implies a narrowing of the yield gap between Aussie and NZ. As a result, the relative value of the NZ$ should ease, helping exporters. A lower cross-rate with Australia then gives the RBNZ one less reason not to increase rates, increase the probability that the Bank will lift rates to 8.5% over the coming months.