SYDNEY, July 19 (Reuters) - The New Zealand dollar blipped higher on Wednesday after an uncomfortably hot reading on inflation pushed the prospect of policy easing further into the future and slugged bonds.
Consumer prices climbed 1.1% in the June quarter to leave annual inflation at 6.0%, disappointing markets that had been priced for a lower number.
Increases were led by food, housing and utilities, while measures of core inflation were all stuck around 6.0% amid stubbornly high service costs.
The result was a challenge to the Reserve Bank of New Zealand (RBNZ) which is hoping that rates of 5.5% are enough to bring inflation to heel over time. "With underlying price and wage pressures remaining firm, the RBNZ still has a rocky road ahead. Inflation looks unlikely to be back within the 1-3% target band before the latter part of next year," said Satish Ranchhod, a senior economist at Westpac.
"We continue to see the risk that the RBNZ will need to raise rates again."
Markets imply around a 50-50 chance of a further hike and see scant chance of a cut until July next year, Indeed, they are priced for just 16 basis points of easing in 2024, compared to 110 basis points in the United States.
That outlook nudged the kiwi dollar up to $0.6295, from an overnight low of $0.6261, while two-year swap rates rose 6 basis points to 5.39%.
The Australian dollar held steady at $0.6812, having found support around $0.6788 overnight as its U.S. counterpart recouped some recent losses.
The Aussie faces stiff resistance at last week's top of $0.6895 and bulls are hoping for some assistance from jobs data due out on Thursday.
Median forecasts are that employment rose 15,000 in June, after a bumper 75,900 jump in May, with unemployment holding at 3.6%. An upside surprise would add to the case for the Reserve Bank of Australia (RBA) resuming rate hikes next month, and likely give the Aussie a lift.
"The labour market has remained inordinately resilient despite the slowing economy, which could sustain upward pressure on wages," said Abhijit Surya, an economist at Capital Economics.
"We're sticking with our view that the RBA will hand down two more 25bp rate hikes by September before concluding its tightening cycle." (Reporting by Wayne Cole; Editing by Shri Navaratnam)
