The latest RBNZ rate decision saw an important change. The first interest rate hike was brought forward to 2022. This also saw the rhetoric from the RBNZ that they could use negative interest rates disappear from their communication. This shift was unexpected, but not a total surprise as the recent data out of New Zealand had shown some good strength. Retail sales at the state of this week surprised to the upside coming in at 2.5% versus -1.6% previous. This decision saw immediate NZD strength.

The Reserve Bank of Australia is trying to target very low unemployment levels and looks unlikely to reach these levels of around 4% (currently 5.5%) until 2024. So, this means that divergence is in place with the RBA and the RBNZ.

The bond yield spread between the AU10 y and NZ 10 y has sharply fallen indicating that more downside in the AUDNZD pair is ahead. Therefore, there is a near term selling bias for the AUDNZD.

Key Trade Risks:

• Any significant shift in central bank policy from the RBA or RBNZ.
• Any pick up in COVID-19 cases.
• Any sharp difference in economic data between Australia and New Zealand.