AUD/NZD rebounds sharply above 1.0580 on downbeat NZ Retail Sales, RBNZ policy eyed

• AUD/NZD has displayed a decent recovery after a sheer contraction in NZ Q1 Retail Sales to 1.4%.
• The RBNZ is expected to raise interest rates further by 25 bps to 5.50%.
• Australian Employment has been hit hard amid a slowdown in the economy due to higher interest rates.

The AUD/NZD pair has shown a solid recovery above 1.0580 as Statz New Zealand has reported downbeat Q1 Retail Sales data. The economic data has contracted by 1.4% while the street was anticipating a contraction of 0.4%. NZ Retail Sales contracted by 0.6% in the last quarter of CY2022. A spree of a decline in retail demand would weigh heavily on inflationary pressures ahead.

Later on Wednesday, the interest rate decision by the Reserve Bank of New Zealand (RBNZ) will be of utmost importance. Analysts at ING stated “Markets are pricing in a peak at around 5.80%, but we think the RBNZ can deliver an extra bit of hawkishness and signal tightening until the 6.00% mark as it hikes by 25 bps this week. That would have positive implications for NZD in the near term.”

Investors should note that RBNZ Governor Adrian Orr hiked its Official Cash Rate (OCR) surprisingly by 50 basis points (bps) to 5.25% in April’s monetary policy meeting as inflationary pressures remained sticky. New Zealand’s inflation softened to 6.7% in the first quarter of CY2023 from the former release of 7.2% but is still far from the desired rate.

On the Australian Dollar front, the Reserve Bank of Australia (RBA) is expected to remain steady in June as Australian Employment has hit hard amid a slowdown in the economy due to higher interest rates. RBA policymakers already hinted that a sharp slowdown could affect the economy and inflation would remain under pressure. This may allow RBA Governor Philip Lowe to keep rates steady and further assess the impact of current interest rate hikes ahead.