The AUD v NZD exchange rate struggles to gain traction as the New Zealand central bank adopts a hawkish tone.
AUDNZD – Daily Chart
AUDNZD has been unable to find strength and mount a bottom in price, and the RBNZ could see it drop further this week.
The Aussie dollar has been struggling versus its neighbour’s currency, the Kiwi dollar, as the Reserve Bank of New Zealand talked of having to do more on interest rates to cool inflation.
However, analysts believe that the RBNZ will keep interest rates on hold this week but retain the threat of a hike.
The Reserve Bank’s Monetary Policy Committee will likely keep its benchmark rate at 5.5% on Wednesday, said 22 of 24 economists in a Bloomberg survey. Only ANZ Bank and TD Securities predict an increase to 5.75%.
“We are firmly of the view that recent data shows monetary policy is having the desired effect,” said Kim Mundy, senior economist at ASB Bank. “But we acknowledge there are still some pockets of sticky inflation in the economy.”
Policymakers have been pouring cold water on market bets that rate cuts are imminent, saying there are still price pressures. The RBNZ has gone further, threatening to tighten interest rates further. Inflation at 4.7% is still well above the bank’s target band of 1-3%. The RBNZ releases its rate decision at 10 am HKT on Wednesday.
The RBNZ will also publish an updated forward path for its rate expectations. Most economists expect to see little change from the previous release in November, which showed the chance of a rate increase this year and no cuts until 2025.
The release will be the last high-level release for the pair until 6 March, when the latest Australian GDP release comes. After failing to get back above support, a hawkish RBNZ could see the NZD continue strengthening until that date.
