MACRO 4 minutes to read

Oz central bank holds fire, New Zealand is next

Kay Van-Petersen

Global Macro Strategist

Summary:  The Antipodeans are in focus after Australia's central bank kept monetary policy steady overnight. Now, the pressure is on for Australia to move at its next meeting on June 5, while New Zealand may pre-empt that with a cut expected tomorrow.


The overall theme for the potential first cut in over 2.5 years from the Reserve BAnk of Australia is it’s a question of when, not If. The market seemed to be 50.50 in regard to a potential cut earlier today, yet despite a dovish statement, the RBA kept the rate at 1.50%, perhaps a nod to not wanting to seem political with upcoming Australian elections

The next meeting is on June 5, where at least at the close of Monday had a 61.5% probability of a cut and currently only has a 19.6%. AussieDollar has had a strong session so far, rally from sub 0.7000 levels to these current 0.7020 / 0.7030 levels: The high of the Asia session (as of Asia afternoon) was around the 0.7050 mark.

Do note that the RBA's quarterly update will be out this Friday, May 10, and downgrades should not be a surprise on the outlook for growth and inflation

Here is a link to today’s RBA statement.

Now within the next 24 hours we will also hear from the Reserve Bank of New Zealand, where just like the RBA economists are looking for a cut of 25 basis points to take us from 1.75% to 1.50%. The RBA not moving probably takes some pressure off of the RBNZ to cut, as their economies are connected and it is a relative world.

If we do get an RBNZ cut, we can expect new near-term highs on AUDNZD from these c. 1.0630 levels… to easily above 1.0700.

If they stay put, then I believe the structural short in AUDNZD should return – it's worth noting that the shorts in AUD are larger than the shorts in NZD… yet neither are at any extremes. See the latest CoT report from Ole Hansen, our Head of Commodity Strategy.
Source: Saxo Bank
Source: Saxo Bank
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