RBA Policy Announcement

The AUD/NZD cross is gaining momentum after the RBA’s latest policy announcement. The RBA is indicating that inflation may rise in the September quarter, which is bolstering the AUD. Meanwhile, expected rate cuts from the RBNZ are putting pressure on the NZD, benefiting the AUD/NZD cross. During the Asian session, the AUD/NZD hit a new high since October 2022, aiming to stay above 1.1400. The RBA has kept the Official Cash Rate at 3.6% and highlighted that underlying inflation is decreasing more slowly, with potential higher inflation in Q3. This likelihood of no rate cuts is providing a slight lift to the AUD. There is a notable difference in the RBA’s approach compared to anticipated RBNZ rate cuts, supporting the upward trend of the AUD/NZD cross. However, caution is advised for bullish traders, as the daily chart shows signs to be aware of. We are now looking at the RBA’s post-meeting press conference for insights from Governor Michele Bullock about future policies. In the press conference, the RBA Governor will discuss monetary policies. The event typically lasts about an hour, starting with prepared statements and followed by a Q&A session. Strong comments may boost the AUD, while softer tones could weaken it. This information includes forward-looking statements that carry risks. The market data and tools provided are for informational purposes only and should not be seen as buy or sell recommendations. It’s essential to conduct thorough research before making any investment decisions.

Central Bank Divergence

A clear difference in central bank policies is supporting the Australian dollar against the New Zealand dollar. The Reserve Bank of Australia has kept its cash rate at 3.6% and is concerned about inflation, contrasting with the Reserve Bank of New Zealand, which the market expects to cut rates by over 70% by the end of the year. This situation supports a bullish outlook on the AUD/NZD pair. This policy divergence makes it a good time to take long positions in AUD/NZD. We believe using derivative strategies, like buying call options with strike prices above the current 1.1400 level, could be an effective way to gain exposure while limiting potential losses. The implied volatility of options can also help us assess the cost of such trades in the coming weeks. That said, we must be cautious since the pairing seems overbought from a technical standpoint, with the daily Relative Strength Index (RSI) above 75. We saw a similar situation in late 2023, which resulted in a quick but sharp correction before the uptrend resumed. Therefore, waiting for a small pullback or consolidation might present a better entry point. Our immediate attention is on Governor Bullock’s press conference today. If she emphasizes that persistent inflation remains the RBA’s main concern, it could be seen as hawkish and push the pair higher. We will be looking for any indications that rate cuts are not likely in the near future. This view is further supported by recent economic data. Australia’s latest quarterly CPI showed core inflation at 3.9%, well above the RBA’s target range, while New Zealand’s equivalent has dropped to 3.4%. This difference in statistics strengthens the case for the Australian dollar’s relative strength. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now