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

• The RBA’s widely anticipated 25-basis-point rate rise in November leaves the Australian Dollar weaker, pushing AUD/NZD lower.
• A 7.9% decline in New Zealand Building Permits in September contrasts with a 17.8% increase in annual consents to 41,091 homes.
• Although traders are concerned about a December RBNZ rate rise, lower oil prices have contained wider market losses.

The Reserve Bank of Australia (RBA) has lifted its cash rate from 4.6% to 4.85%, marking its fifth increase in 2026 and taking the rate to its highest level since 2008. The Australian Dollar (AUD) has weakened following the decision, with AUD/NZD extending its decline for a second consecutive day to trade near 1.2430 during Tuesday’s Asian session.

Persistently high and broad-based inflation has led RBA staff to revise their forecasts substantially upwards, the board reported. The revised outlook puts inflation above 3% over the coming year, with a return to the upper end of the 2% to 3% target range not expected until late 2027. That is around three quarters later than previously forecast.

Alongside higher fuel and commodity prices arising from the Middle East conflict, the RBA pointed to intensifying domestic capacity constraints. Businesses are still passing increased costs on to consumers, while several gauges of inflation expectations have risen. A surge in AI-related investment is also fuelling rapid price increases across technology goods.

September’s seasonally adjusted Building Permits in New Zealand declined by 7.9% month on month, more than erasing August’s increase of 5.3%, which had been revised downwards. The annual picture nevertheless remained substantially stronger: consents were issued for 41,091 new homes in the year ended September 2026, up 17.8% on the year ended September 2025.

Prospects of further monetary tightening continued to weigh on market sentiment. With the Reserve Bank of New Zealand (RBNZ) still seeking to bring inflation under control, 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.

RBNZ keeps rates on hold as weak demand offsets inflation rebound

At its most recent policy meeting, the RBNZ adopted a cautious stance, according to Rabobank’s Jane Foley. She draws attention to its observation 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 view, that judgement on underlying demand helped support the decision to keep rates steady, despite the forecast near-term increase in headline inflation and market expectations of a rise.