Current Trends and Market Movements

The AUD/NZD pair has recently risen towards the 1.10 level, driven by robust Australian economic data and weaker survey data from New Zealand. However, the upcoming Reserve Bank of New Zealand (RBNZ) meeting could challenge this trend, depending on how the central bank responds to the softening economic indicators.

Key Points Influencing AUD/NZD

Strength in AUD

• Strong Australian Data: Positive surprises in Australian inflation and retail sales data have bolstered expectations for a Reserve Bank of Australia (RBA) rate hike in August. This strong economic performance has provided significant support for the Australian Dollar (AUD).

Weakness in NZD

• Weak New Zealand Data: New Zealand’s recent survey data indicates a potential contraction in GDP for Q2 2024, a loosening labor market, and easing inflation pressures. This has led to expectations of a 25 basis point (bp) rate cut by the RBNZ by November, putting downward pressure on the New Zealand Dollar (NZD).

Upcoming RBNZ Meeting

The RBNZ’s June meeting could be a pivotal moment for the AUD/NZD pair. Given the short interval between the May and July Monetary Policy Statements (MPSs), the central bank is expected to rely heavily on survey data.

Survey Data Insights

• Services Sector Struggles: The data highlights challenges in New Zealand’s services sector, including weakening inflation expectations, reduced labor hiring, and falling food prices. These indicators suggest a softening economic environment.
• RBNZ Communication: RBNZ Chief Economist Paul Conway has acknowledged the weakening inflation pressures but also emphasized the importance of maintaining vigilance and the necessity of enduring short-term economic pain to control inflation.

Market Expectations

The market is closely watching for any signals from the RBNZ regarding its future rate hike plans. There is hope that the RBNZ might remove the risk of a rate hike in 2024 from its Official Cash Rate (OCR) forecast profile. Should this happen, it could provide a boost to the NZD, potentially reversing the recent upward trend in AUD/NZD.

Credit Agricole anticipates that the upcoming RBNZ meeting could significantly influence the current trend in the AUD/NZD pair. While strong Australian data continues to support AUD strength, the RBNZ’s response to New Zealand’s soft economic data and inflation pressures will be crucial. If the RBNZ signals no further rate hikes, it could disappoint market expectations and strengthen the NZD, potentially altering the recent upward trajectory of AUD/NZD. As such, market participants should closely monitor the outcomes of the RBNZ meeting for cues on future movements in the AUD/NZD pair.