RBA Summary: Overnight, the RBA caressed its monetary policy outlook, planning to reduce asset purchases in September. This was somewhat surprising to the consensus of the markets, given the recent closure measures, which in turn led to the abolition of the situation. AUD / USD. The RBA’s decision, however, was the scenario I was inclined towards for the following reasons.
- The RBA expects the economy to recover quickly once the virus is contained and restrictions eased, based on previous evidence.
- The RBA framework also takes into account the decisions of other central banks. Both the BoE and the BoC reduced asset purchases at a time when these countries were subject to restrictive measures.
New Zealand employment key ahead of RBNZ decision
Elsewhere, the next focus for antipodeans is the NZ Employment Report, which has been a key RBNZ rate decision later this month and essentially confirm whether the hike will take place or not. As it stands, money markets will estimate 25 bits with a 77% probability at a forthcoming meeting. Although there has been a significant shift in the front interest rate over the last month, Kiwi has not been able to take advantage of the change in interest rates NZD/USD continues to float around 0.7000 handles. On top of that, however, tonight’s lack of employment is likely to lead to an invitation to raise the 50/50 interest rate to the August meeting and thus speed up AUD / NZD up to 1.0600.
Four NZ Price increases will be estimated by the end of 2022
1M change in currency exchange vs. change in OIS
China’s concerns leave NZD vulnerable
That being said, while national fundamentals are encouraging for New Zealand, there are pockets of insecurity across China that could keep up with the kiwi restriction. Especially if China starts to re-impose restrictive measures, given the recent proliferation of Covid cases. In turn, as front-end interest rates have been rated very shamefully, this leaves Kiwi vulnerable should China’s concerns rise.
NZD / USD chart: daily schedule