AUD/NZD traders await the critical RBNZ meeting for next catalyst

At 1.1030, AUD/NZD is down by some 0.1% after falling from a high of 1.1048 to a low of 1.1029 on the session so far as the week draws to a close before the Reserve Bank of New Zealand next week. 

The Reserve Bank is expected to lift the OCR by another 50 basis points to 2% but that will still leave the rate a long way from where it ultimately needs to be to get on top of inflation pressures, analysts at Westpac argued.

Key comments

''The RBNZ has accepted the idea that stronger action now will reduce the risk of an even more painful peak in interest rates in the future.'' 

''We expect the RBNZ to signal a further series of OCR hikes on the way to a peak of around 3.5%.''

''We think that recent developments will leave the RBNZ’s OCR forecasts much as they were described in April: a peak similar to the 3.4% that was projected in February, but with a faster pace of tightening to reach that point sooner.''

''Financial markets are already factoring in a more aggressive tightening profile along these lines, including a 50bp move next week, so we wouldn’t expect to see much movement in interest rates or the New Zealand dollar after the announcement.''

RBA outlook

Meanwhile, the Reserve Bank of Australia will be digesting the recent wage prices and the employment report that came out this week. The Australian Unemployment Rate dropped 0.1%to 3.9% in April, in line with expectations.

However, this was not enough to enthuse the Aussie bulls and when coupled with a disappointing wages data on Wednesday, the most analysts are expecting from the RBA is a 25bp cash rate hike at the June meeting, according to ANZ Bank that argues that this is more likely than a supersized 40-50bp hike. ''We continue to expect unemployment to fall to the low 3s later this year and underemployment to also decline further.''