Why is the Australian Dollar falling against the New Zealand Dollar despite an RBA rate hike?

• Weakness in the Australian Dollar weighs on AUD/NZD after the RBA delivered its widely anticipated 25-basis-point rate increase in November.
• Despite a 7.9% September decline in New Zealand Building Permits, annual consents increased 17.8% to 41,091 homes.
• Concerns about a December RBNZ rate increase persist among traders, although lower oil prices cushioned losses across the broader market.

Pressure on the Australian Dollar (AUD) keeps AUD/NZD on the back foot for a second consecutive day, with the cross trading near 1.2430 during Tuesday’s Asian session. The AUD weakened after the Reserve Bank of Australia (RBA) lifted its cash rate from 4.6% to 4.85%. The increase marks the fifth rate hike of 2026 and takes the rate to its highest level since 2008.

With inflation still high and spread across the economy, the RBA board said staff had made substantial upward revisions to their forecasts. 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 now expected only in late 2027. That is around three quarters later than the earlier projection.

Beyond the rise in fuel and commodity prices associated with the Middle East conflict, the RBA pointed to intensifying capacity constraints within the domestic economy. Businesses are still passing higher costs on to consumers, while several gauges of inflation expectations have risen. A surge in AI-related investment is also pushing technology goods prices up rapidly.

New Zealand’s seasonally adjusted Building Permits declined 7.9% month-on-month in September, wiping out August’s 5.3% increase, which had been revised lower. The annual picture nevertheless remained strong. Consents for 41,091 new homes were issued in the year ended September 2026, up 17.8% from the year ended September 2025.

Caution over the prospect of further monetary tightening continued to shape market sentiment. As the Reserve Bank of New Zealand (RBNZ) pressed ahead with efforts to contain inflation, traders remained alert to signals of a possible rate increase at its forthcoming December meeting. A steep fall in oil prices, however, eased wider inflation concerns and helped contain market losses.

Why did the RBNZ hold rates as weak demand tempered the inflation rebound?

The RBNZ adopted a cautious stance at its latest policy meeting, according to Rabobank’s Jane Foley, who 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, the underlying weakness in demand helped support the decision to keep rates steady, even with headline inflation projected to rise in the near term and markets anticipating a hike.