Down under central bank low down
|Summary
At their respective monetary policy meetings this week, central banks in Australia and New Zealand remained relatively comfortably on hold.The Reserve Bank of Australia (RBA) held its Cash Rate at 4.10%, while the Reserve Bank of New Zealand (RBNZ) held its Official Cash Rate at 5.50%.
For Australia, the RBA said that the economy is experiencing below-trend growth and that inflation is still expected to return to the 2-3 percent target range over its forecast period. While the RBA maintains a mild tightening bias, so long as growth stays sluggish and wage and price inflation keep trending in a favorable direction, we still think the current 4.10% policy rate will prove to be the peak for this cycle.
The RBNZ said interest rates are constraining economic activity and reducing inflationary pressure. The central bank gave no clear signal of further tightening, but did hint that interest rates might have to remain at an elevated level for a more sustained period of time.
Against a backdrop of overall resilient U.S. activity and higher U.S. yields, we view an on-hold RBA and RBNZ as consistent with some further Australian and New Zealand dollar downside in the months ahead. We target a low for AUD/USD around $0.6100, and a low for NZD/USD around $0.5700, by end Q1-2024.
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