AUD/NZD trims a part of intraday gains as RBA rate hike vote split undermines AUD

The AUD/NZD cross trims a part of its intraday gains to the 1.2120 area, or the highest level since May 2013, following the key Reserve Bank of Australia (RBA) rate decision, though it lacks follow-through selling. Spot prices manage to hold above the Asian session low and currently trade around the 1.2070 region, still up 0.05% for the day.

As was widely expected, the RBA hiked the Official Cash Rate (OCR) by 25 basis points (bps) to 4.10% from 3.85% at the end of its March monetary policy meeting this Tuesday. Meanwhile, a narrow 5–4 vote split highlights a significant divergence of views within the policy committee about the appropriate response to evolving inflation dynamics. This, in turn, prompts some intraday selling around the Australian Dollar (AUD) and the AUD/NZD cross.

In the accompanying policy statement, the central bank warned that there is a material risk inflation will remain above the 2–3% target range for longer than previously expected. The RBA added that the conflict in the Middle East has resulted in sharply higher fuel prices, which, if sustained, will add to inflation. This keeps the door open for further policy tightening, which acts as a tailwind for the AUD/NZD cross and helps limit the downside.

Traders now look forward to the post-meeting press conference, where comments from RBA Governor Michele Bullock will be scrutinized closely for cues about the policy outlook. This, in turn, will play a key role in influencing the AUD price dynamics and provide some impetus to the AUD/NZD cross. The market attention will then shift to the quarterly GDP report from New Zealand, due for release during the Asian session on Wednesday.