AUD/NZD weakness as central bank policies diverge
To strip out the effects of the Fed we can take a look at the moves in AUD/NZD, both bolstered by risk-on sentiment. In this pair, the 25bps hike from the RBA is clearly seen as the bank underdelivering on its mandate to bring inflation back to its 2% target, a clear divergence from the RBNZ so far. The bank is due to meet on November 23rd and markets are suggesting we may see a 75bps hike this time around as inflation continued to tick higher in Q3.
Similar to AUD/USD, AUD/NZD saw a spike higher on the 26th of October after the Q3 CPI data was released and rate hike odds grew in favour of 50bps. But the two central banks are starting to diverge in policy and therefore the New Zealand dollar is likely to remain dominant over the coming weeks unless we see a shift in stance from either side, whether it be in form of data or commentary from officials.
The 10-year yield differential between them has also been widening which supports AUD/NZD lower and the fact that we have broken below the 200-day MA for the first time since January this year suggests the pair may continue to drop, potentially breaking below support at 1.0920.
Similar to AUD/USD, AUD/NZD saw a spike higher on the 26th of October after the Q3 CPI data was released and rate hike odds grew in favour of 50bps. But the two central banks are starting to diverge in policy and therefore the New Zealand dollar is likely to remain dominant over the coming weeks unless we see a shift in stance from either side, whether it be in form of data or commentary from officials.
The 10-year yield differential between them has also been widening which supports AUD/NZD lower and the fact that we have broken below the 200-day MA for the first time since January this year suggests the pair may continue to drop, potentially breaking below support at 1.0920.