SYDNEY – The Australian dollar jumped on Wednesday after a surprisingly red-hot inflation report all but cemented the case for another interest rate hike from the Reserve Bank of Australia (RBA) in February.

Going the other way, the kiwi sagged and swap rates tumbled after data showed inflation in New Zealand has likely peaked, with markets pricing in the view that the Reserve Bank of New Zealand (RBNZ) might not have to be as aggressive as previously thought.

The Australian dollar surged 0.7 per cent to 70.97 US cents, after rising 0.2 per cent overnight. It now faces resistance at its August high of 71.36 US cents. The currency also rose against the Singapore dollar, with one Singdollar trading down 0.46 per cent to A$1.0707 as at 5.25pm.

Australian inflation shot to a 33-year high of 7.8 per cent in the last quarter, beating an analyst consensus estimate for a 7.5 per cent rise, with price pressures broadening.

For December alone, the consumer price index (CPI) rose a startling 8.4 per cent.

The shock result led markets to price in a 75 per cent probability that the RBA will lift its cash rate by another 25 basis points when it meets next month, squashing hopes of a pause.

Mr Robert Carnell, regional head of Asia-Pacific research for ING, revised up his forecast for the cash rate to peak at 4.1 per cent, from 3.6 per cent previously.

“We had already been looking at our cash rate forecast with a view to revising it higher, and this latest data leaves us no option but to increase it,” he said.

“Much of the recent inflation disappointment can be put down to one-offs, weather-related and other seasonal effects… The main risk is that we may not yet have seen an end to the one-offs and seasonal shocks.”

Futures also moved to price in the risk of at least two more rate hikes from the RBA, with swaps implying a peak above 3.6 per cent. That compared with about a peak of 3.4 per cent just before the CPI release.

The kiwi, on the other hand, eased 0.3 per cent to 64.85 US cents, pulling further away from a seven-month high of 65.3 US cents struck last week, as data pointed to inflation easing in New Zealand.

Futures now see rates there peaking at 5.3 per cent, below the guidance level of 5.5 per cent previously provided by RBNZ. REUTERS