Australia_ NZ dollars get a lift from sky-high inflation

The New Zealand dollar has seen a rare rally on Monday after an alarmingly high reading on inflation stoked speculation of more aggressive rate hikes_ pushing up bond yields and its Australian cousin.

The kiwi popped up to $0.6180 and away from last week s two-year low at $0.6061. It now faces resistance around $0.6204 and $0.6253.

The Australian dollar extended a bounce to $0.6810_ putting a little distance between its two-year troughs of $0.6682. Resistance lies around $0.6825 and $0.6873.

Data showed New Zealand consumer prices jumped 1.7% in the second quarter lifting annual inflation to a 32-year high of 7.3%_ topping forecasts of 7.1%.

Two-year swap rates climbed 8 basis points to 4.12% in a reaction as investors priced in more risk the Reserve Bank of New Zealand (RBNZ) might hike by a larger 75 basis points in August.

The red-hot CPI report also suggested there was some risk Australia s inflation figures due next week might surprise on the high side.

Analysts already fear annual inflation might accelerate beyond 6% in the second quarter and could be near 8% by the end of 2022.

A super-strong jobs report last week has fuelled wagers the Reserve Bank of Australia (RBA) might step up its hiking pace by 75 basis points in August.

 Inflationary pressures are building_ confirming the RBA will need to lift the cash rate by at least 50 basis point at its meeting in August and raising the risks of a larger rise or more front-loaded hiking_ said Felicity Emmett_ a senior economist at ANZ.

RBA Governor Philip Lowe has indicated he sees neutral rates as being around 2.5 per cent_ a long way from the current 1.35 per cent. Lowe is scheduled to give a speech on Wednesday and his deputy on Tuesday_ and they are likely to draw questions on the speed of tightening.