AUD/NZD advances to near 1.1000 as RBA maintains its current rates
- AUD/NZD remains stronger following the RBA’s decision to keep the Official Cash Rate at 4.35% at Tuesday’s meeting.
- The upside Australian Dollar could be retrained as the second-quarter inflation data has reduced odds for another RBA rate hike.
- The New Zealand Dollar struggles as the RBNZ is highly expected to deliver an early interest rate cut in October.
AUD/NZD extends its winning streak for the third successive session, trading around 1.0980 during the Asian hours on Tuesday. The AUD/NZD cross appreciates following the Reserve Bank of Australia’s (RBA) monetary policy decision to keep the Official Cash Rate (OCR) at 4.35% for the sixth time. Traders will likely pay close attention to RBA Governor Michele Bullock’s upcoming speech, which could offer insights into the board’s future policy direction.
The Australian Dollar (AUD) could struggle against its peers as the second-quarter inflation data has diminished expectations for another RBA rate hike. Markets estimate an RBA rate cut in November, a move anticipated much earlier than previously forecasted for April next year.
On the Kiwi front, expectations of an early interest rate cut by the Reserve Bank of New Zealand (RBNZ) put pressure on the Kiwi Dollar and support the AUD/NZD cross. This sentiment follows data showing that the domestic annual CPI rate dropped to its lowest level in three years for the June quarter. The RBNZ's next policy meeting is set for August 14, with markets partly anticipating a rate cut then and fully expecting one by October.
Traders will likely watch the release of China’s July Consumer Price Index (CPI) on Friday for new momentum. The CPI is expected to show a 0.4% year-on-year increase. A weaker-than-expected reading of an economic slowdown in China could affect both antipodean currencies, as China is a significant trading partner for Australia and New Zealand.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
Author
Akhtar Faruqui
FXStreet
Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.
