Kiwi Blips Higher As NZ Inflation Expectations Rise, Reaction Move Short-Lived

NZD crosses knee-jerked higher as the RBNZ released their quarterly survey of expectations, which showed that 2-year inflation expectations rose to +2.27% Y/Y in Q3 from +2.05% in the previous quarter, reaching a new three-year high and lending support to the view that inflation pressures continue to build. The kiwi promptly reversed gains and is among the worst G10 performers as we type.

• The release comes less than a week before next Wednesday's RBNZ monetary policy meeting. NZD/USD 1-week implied volatility has risen over the last two days and last sits at 9.86%.
• The OIS strip prices 30bp worth of tightening at the upcoming RBNZ meeting, but many sell-side desks expect a double-barrel 50bp OCR hike.
• NZD/USD has erased its reaction gains and last trades at $0.7036, marginally shy of neutral levels. Familiar technical levels remain in play.
• AUD/NZD dipped to a fresh session low of NZ$1.0456 before bouncing off there and last changes hands at NZ$1.0468,barely changed on the day. Bears keep an eye on NZ$1.0418, which limited losses on Dec 1, 2020 and provides a key layer of support. Bulls look for a rebound above Aug 10 high of NZ$1.0512.
• Australia/New Zealand 2-Year Swap Spread continues to tighten to multi-year extremes, as the Oz is forced to implement lockdown measures in response to its Covid-19 outbreak.