- AUD/NZD carving out the downside at the start of the week.
- All eyes turn to the RBNZ and markets keep second-guessing the RBA.
Bith the Australian dollar and kiwi are in favour at the start of the week in a risk on open and in the face of a weaker US dollar. The Aussie is enjoying some correctives at the start of the week, taking on a 4-hour resistance as the US dollar continues to limp. The currency had been on the front foot following stronger than expected inflation data in the Consumer Price Index last month and expectations of a committed central bank to hike rates further.
However, the recent wage and employment data may not have met Governor Lowe’s threshold of there needing to be “a very strong argument” for the RBA to “deviate” from moves of 25bp in coming months, analysts at ANZ Bank argued.
''Especially when the minutes from the May meeting highlighted “that the Board meets monthly”, so has “the opportunity to review the setting of interest rates again within a relatively short period of time.”
''Still, we think the option of a 40bp move will be considered at the RBA’s June meeting before a move of 25bp is chosen.''
Nevertheless, the RBA minutes were insightful and there is a stronger case for the 40bos move in a recent note written by analysts at Westpac:
''The RBA May Board meeting which provided useful insights into some changes in the thinking of the Board. Essentially the Board recognises its inflation challenge while indicating that it will not be dependent on the Wage Price Index (WPI) alone as its guide to developments in the labour market.''
''It also highlighted that other central banks are moving quickly to a neutral stance of monetary policy. That is significant given that the Governor has repeatedly pointed out that Australia’s inflation challenge is not as severe as in other countries.''
''That observation is not supported by the current forecasts. The RBA expects underlying inflation to reach 4.6% by year’s end whereas the FOMC sees core PCE inflation at 4.1%. For these reasons, we do not see the slightly lower than expected WPI for the March quarter as being a swing factor in its decision on June 7. We still expect the RBA to raise the cash rate by 40 basis points.''
RBNZ in focus
Meanwhile, there will be a focus on the Reserve Bank of New Zealand. Analysts at TD Securities explained that both Consumer Price Inflation (6.9% YoY) and sectoral core inflation (4.2% YoY) were elevated in the first quarter and hint at the urgency needed from the RBNZ to constraint inflation expectations.
''The Bank seems content with its 'stitch in time' approach to policy and didn’t push back on market pricing which leads us to conclude that the Bank will go ahead with another 50bps hike.''
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