RBA Policy Announcement
The AUD/NZD cross gains traction after the RBA’s policy announcement. The RBA hints at higher inflation for the September quarter, boosting the AUD. Expectations for further RBNZ rate cuts weigh on the NZD, supporting the cross.
The AUD/NZD reaches a new high since October 2022 during the Asian session, aiming to maintain momentum beyond 1.1400. The RBA keeps the Official Cash Rate at 3.6%, noting slower underlying inflation decline and potential higher Q3 inflation. This reduces the likelihood of rate cuts, lifting the AUD slightly.
A divergence emerges as the RBA’s stance contrasts with anticipated RBNZ rate cuts, supporting the AUD/NZD cross’s upward trend. However, the daily chart suggests caution for bulls. Attention now turns to the RBA’s post-meeting press briefing for policy outlook cues from Governor Michele Bullock.
The RBA Governor discusses monetary policy decisions in a press conference. Typically lasting an hour, it begins with prepared remarks and includes a Q&A session. Hawkish comments can strengthen the AUD, while dovish messages may weaken it.
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Central Bank Divergence
We see a clear divergence in central bank policy that supports the Australian dollar against the New Zealand dollar. With the Reserve Bank of Australia holding its cash rate at 3.6% and signaling concerns about inflation, it stands in contrast to the Reserve Bank of New Zealand. The market is currently pricing in a more than 70% chance of an RBNZ rate cut by year-end, which justifies a bullish stance on the AUD/NZD pair.
This policy difference supports taking long positions in AUD/NZD, and we believe derivative strategies are well-suited for this outlook. Buying call options with strike prices above the current 1.1400 level could be an effective way to gain exposure to further upward movement while limiting downside risk. The implied volatility in options can help gauge the cost of such a trade over the coming weeks.
However, we need to be cautious as the pair looks overbought on a technical basis, with the daily Relative Strength Index (RSI) pushing above 75. Looking back, we saw a similar over-extended reading in late 2023, which led to a brief but sharp correction before the uptrend continued. Therefore, waiting for a small pullback or consolidation might offer a better entry point.
The immediate focus for us is Governor Bullock’s press conference today. Any comments reinforcing that sticky inflation is the RBA’s primary concern will likely be interpreted as hawkish and could propel the pair higher. We will be watching for language that downplays the chance of any rate cuts in the near future.
This view is further supported by the latest economic data we have seen this month. Australia’s most recent quarterly CPI print showed core inflation holding at 3.9%, well above the RBA’s target band, while New Zealand’s equivalent measure has softened to 3.4%. This statistical gap reinforces the fundamental reason for the Australian dollar’s relative strength.
