The recent RBA meeting surprised markets with another unexpected 25 bps rate hike. With headline inflation at 7% y/y and core inflation at 6.6% y/y, the RBA took action to address inflation quickly. Market projections indicate that the RBA is expected to reach a terminal rate of 4.49% by the end of the year, although much of this AUD strength has already been factored into the AUDNZD’s recent rise.

In contrast, the monetary policy of New Zealand differs from that of Australia. The RBNZ signaled that it believes it has completed its last interest rate hike by keeping its terminal projections aligned with current levels.

This divergence has been playing out for some time, and further AUDNZD gains look difficult to maintain. However, there may still be some technical buyers from the 50% fib retracement level as explained in the video.

Major Trade Risks: The biggest risk here is if the interest rate expectations change between the RBA and the RBNZ.