*Last week the RBNZ made a material shift in their policy stance by providing forward guidance that they project a hike in the OCR to occur by September 2022. This was despite the fact that the bank still acknowledged that there is a long way to go for things like growth, and the labour market and showed that the bank’s decision was not only due to the better-than-expected outlook but also part reaction function.
The bank also dropped their prior comments which said that they were “prepared to lower the OCR if required”, which is a 180 degree turn from just three months ago where they didn’t have enough confidence to provide rate guidance past March 2021.
*Contrast this to the RBA, which has opted to fall in line with the likes of the FED recently by choosing a more dovish stance on policy and especially forward guidance, by stating that they would only consider raising rates when they have met their goals and they only see those goals being met by 2024. Start contrast to that of the RBNZ. The RBA will also take longer to normalize compared to the RBNZ even if the economic data surprises because they have more easy policies currently in place that needs to be unwound first such as their Yield Curve Control. Furthermore, given their recent dovish inclinations, market participants are expecting them to announce an additional program.
*If the recent downside in commodity prices turn around and start pushing higher again that would benefit the AUD from a terms of trade point of view and could pose challenges for the pair.
*Any major risk off flows across major asset classes (which is not driven) can weigh on yields as bonds is also considered a safe haven, thus given the strange move lower in NZ10Y today that could create some further divergence in the yield spread to the upside.
*Any bad news surrounding the virus situation in the NZ could also pose some downside in the NZD.
*A surprise hawkish tilt from the RBA at their July meeting is arguably the biggest risk to further downside for the AUDNZD right now.