On May 12 the NZD lost value against the AUD due to cooling inflation projections. New Zealand’s 2-year inflation expectations fell to 2.8% from 3.3% prior to Q2. These cooler inflation projections sent the AUDNZD pair higher. However, the ANZ forecasts the RBNZ to hike to 5.75% in July and STIR markets see it as a near certainty that the RBNZ will hike by 50bps next week when the RBNZ meets on May 24.

Now, what’s very interesting is that the AUDNZD has a distinct period of weakness over this RBNZ meeting. So, will we see that pattern repeat itself? If the RBNZ is more hawkish than markets are expecting on the interest rate decision next week, that could result in some AUDNZD weakness. Seasonally, there is weakness in the AUDNZD, with falls over 75% of the time in the last 23 years between May 17 and May 27.

Major Trade Risks: The major trade risk here is that the RBNZ might take a more dovish stance and signal it has finished hiking rates. This could provide a natural headwind to the outlook of AUDNZD downside.

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