AUD/NZD surges to near 1.1000 following the unexpected rate cut by RBNZ

AUD/NZD

Fxstreet

Aug 14, 2024 2:34 AM

The AUD/NZD lost ground following the RBNZ's unexpected 25 basis point rate cut on Wednesday.
The RBNZ Monetary Policy Statement indicates that inflation is decreasing and returning to the 1-3% target range.
The Australian Dollar advances due to the decreasing likelihood of an RBA rate cut soon.

AUD/NZD breaks its three-day losing streak, trading around 1.0990 during the Asian session on Wednesday. This upward movement is attributed to the Reserve Bank of New Zealand's (RBNZ) unexpected decision to cut its Official Cash Rate (OCR) by 25 basis points to 5.25% at its August meeting. Traders are looking forward to further insights from the press conference and RBNZ Governor Adrian Orr’s speech scheduled for later in the day.

According to the RBNZ Monetary Policy Statement (MPS) summary, inflation is decreasing and returning to the 1-3% target range. Service sector inflation is anticipated to drop further. The committee's decision on additional easing will depend on their confidence that pricing behavior remains aligned with a low inflation environment. The Consumer Price Index (CPI) is expected to stay around the target midpoint in the foreseeable future.

On the Aussie front, recent data shows that Australian wage growth remained elevated in the second quarter, prompting the Reserve Bank of Australia (RBA) to adopt a hawkish stance regarding its policy outlook. This has been supporting the Australian Dollar (AUD) and underpinning the AUD/NZD cross.

Last week, RBA Governor Michele Bullock ruled out the possibility of rate cuts for the next six months. Bullock emphasized that the Australian central bank remains vigilant about inflation risks and is ready to raise rates again if needed.

Economic Indicator

RBNZ Interest Rate Decision

The Reserve Bank of New Zealand (RBNZ) announces its interest rate decision after its seven scheduled annual policy meetings. If the RBNZ is hawkish and sees inflationary pressures rising, it raises the Official Cash Rate (OCR) to bring inflation down. This is positive for the New Zealand Dollar (NZD) since higher interest rates attract more capital inflows. Likewise, if it reaches the view that inflation is too low it lowers the OCR, which tends to weaken NZD.

Why it matters to traders?

The Reserve Bank of New Zealand (RBNZ) holds monetary policy meetings seven times a year, announcing their decision on interest rates and the economic assessments that influenced their decision. The central bank offers clues on the economic outlook and future policy path, which are of high relevance for the NZD valuation. Positive economic developments and upbeat outlook could lead the RBNZ to tighten the policy by hiking interest rates, which tends to be NZD bullish. The policy announcements are usually followed by Governor Adrian Orr’s press conference.

Disclaimer: For information purposes only. Past performance is not indicative of future results.