RBA rate hike fails to prevent Australian Dollar decline against New Zealand Dollar

• A widely anticipated 25-basis-point RBA rate increase in November leaves the Australian Dollar weaker. AUD/NZD moves lower.
• A 7.9% September decline in New Zealand Building Permits contrasts with a 17.8% rise in annual consents to 41,091 homes.
• Prospects of an RBNZ rate increase in December concern traders, although lower oil prices cushion wider market losses.

AUD/NZD trades near 1.2430. The cross is down for a second consecutive day during Tuesday’s Asian session as the Australian Dollar (AUD) weakens following the Reserve Bank of Australia’s (RBA) decision to lift the cash rate from 4.6% to 4.85%. The increase is the fifth in 2026, taking the rate to its highest level since 2008.

Persistently high and broad-based inflation has led RBA staff to raise their forecasts substantially, according to the board. The revised outlook puts inflation above 3% over the coming year. A return to the upper end of the 2% to 3% target range is not expected until late 2027, roughly three quarters later than the previous projection.

Alongside higher fuel and commodity prices associated with the Middle East conflict, the RBA cited intensifying domestic capacity constraints. Businesses are still passing rising costs on to consumers, while several gauges of inflation expectations have increased. Rapid price gains across technology goods are also being driven by a surge in AI-related investment.

September’s seasonally adjusted Building Permits in New Zealand dropped 7.9% month on month, more than erasing August’s downwardly revised 5.3% increase. The annual picture remained markedly stronger despite that monthly fall. Consents covered 41,091 new homes in the year ended September 2026, up 17.8% from the year ended September 2025.

Concern about further monetary tightening continued to weigh on market sentiment. With the Reserve Bank of New Zealand (RBNZ) still working to contain inflation, traders remained alert to indications of a possible rate increase at its forthcoming December meeting. A steep fall in oil prices, however, alleviated wider inflation concerns and helped contain market losses.

4.4% inflation forecast: RBNZ holds rates as demand stays weak

A cautious message emerged from the RBNZ’s latest policy meeting, according to Rabobank’s Jane Foley. She notes 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.” In her assessment, weak underlying demand helped support the decision to keep rates unchanged, despite the projected near-term increase in headline inflation and market expectations of a rise.