Ahead of the 18 August RBNZ meeting, economists at Credit Suisse believe the monetary policy divergence story pitting the Reserve Bank of New Zealand (RBNZ) against the Reserve Bank of Australia (RBA) leaves scope for AUD/NZD to retry breaking below 1.0450.

Mind the monetary policy gap

“We had taken on a conservative 1.0450 target mainly because we recognized that the RBA’s recently hawkish narrative threatened to narrow the monetary policy gap between the two central banks.”

“Markets currently expect the bank to hike its policy rate by 25bps. Markets expect the bank’s rate path forecasts to signal two policy rate hikes by the end of 2021. If the RBNZ were to validate the possibility of three rate hikes this year, markets would likely take this as a hawkish surprise.”

 

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