The disparity between Australia and New Zealand is growing.

Australia

First of all more than half of all Australia is in lockdown. With only around 15% of the population fully vaccinated the country must ‘contain’ the contagious defat variant rather than ‘live with it’ like the other mire highly vaccinated countries.

The consequence of this is that Australian household spending has taken a hit as the latest lockdowns hit in June. Preliminary retail sales dropped 1.8% in June from a month earlier, compared with economists’ median estimate of a 0.7% decline, the Australian Bureau of Statistics said in a report released in Sydney Wednesday Westpac see that the RBA may now increase their tapering levels to $6 billion per week and Goldman Sachs see that RBA tapering may now be delayed until November.

New Zealand

The outlook for the RBNZ is different. At the last meeting, the RBNZ surprised markets and announced that bonds would be completely tapered on July 23. The latest inflation data saw a print of +3.3% y/y which was the largest print in 19 quarters. This led to all the four largest New Zealand banks projecting a rate hike in August, next month.

So, the RBA see no rate hike until 2024. The RBNZ see a rate hike next month. The bond yield spread between Australian and New Zealand 10 year bonds has moved sharply lower.

Although this could be entered at market a retracement back to the 50% of the recent leg lower would be a decent place to reasonable expect sellers and a move down to 1.04500 seems reasonable given the divergence that has opened up between the RBA & the RBNZ.