This week saw a divergence remain in place between the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ). The RBA kept interest rates unchanged midweek but extended its term funding facility that allows banks to access low-interest money flows for small and medium-sized businesses. The recent communication from the RBA does not suggest a rate cut is due. However, in contrast, the RBNZ maintained its position this week to implement negative interest rates next year. Can this central bank divergence support AUDNZD dip buyers in the coming week?

Key events from the past week

• AUD: RBA holds rates, Sep 01. The RBA left both the cash rate unchanged at 0.25% and the 3yr yield target at 25bps as expected. Inflation is expected to average between 1 and 1 1/2% over the next couple of years. All in all, there were very few surprises here as the bank held a steady course.
• NZD: RBNZ committed to negative rates, Sep 02. RBNZ’s Governor Orr is committed to the possibility of using negative rates. The central bank has indicated it could take the cash rate negative next year. This means the divergence between the RBA and the RBNZ remains open for now.
• AUD: Oz’s golden run ends, Sep 02. Australia’s GDP data showed a fall by -7% in Q2 from a -0.3% decline in Q1. This has brought a solid run of 28 years of economic growth for Australia to an abrupt end. Furthermore, the shutdowns in Victoria State are expected to weigh heavily on Q3 GDP data too.

Key events for the coming week

• CAD: BOC rate decision, Sep 09. Overnight Index swap prices over the next 12 months suggest lower rates are more likely than higher rates. However, there is a 91% probability of no rate change, so any surprise rate cuts next week will quickly weaken the CAD in a short sharp move lower.
• EUR: ECB rate decision, Sep10. The ECB may feel pressured to add more stimulus after the recent run of strength in the EURUSD. Rates are expected to remain unchanged, but EUR traders will be ready for the potential volatility out of the rate meeting and the press conference 45 minutes later at 13:30 BST.
• Copper: Pull back for Copper? September. Copper is now pulling back from its recent two-year highs as the USD found strength. A stronger USD tends to weaken copper prices as the metal costs more for purchasers using the non-US dollar-denominated currency.