Listen to the latest market mood for the AUDNZD pair.
The NZD has been weak since yesterday as the RBNZ Monetary Policy Committee agreed to significantly expand the Large Scale Asset Purchase (LSAP) programme potential to $60 billion. However, this was expected. It was the possibility of negative interest rates which caused the most damage to the kiwi. The deputy Governor Geoff Bascand clarified that the RBNZ would like to be ready for negative rates by the end of the year. It was this willingness for the RBNZ to allow negative interest rates which weakened the NZD.
The AUD is strong as the Reserve Bank of Australia, by contrast, is less inclined to negative rates and does not favour them.
Therefore we can see a divergence between the RBA and the RBNZ central banks. Due to this situation the yield spread between the Australian and New Zealand 10 year bond will be set to widen and pull AUDNZD higher.
We expect this outlook to play out over the next 1-2 weeks.
The main risk to this outlook:
- A fast domestic recovery from New Zealand may negate the need for negative interest rates.
- Further US/China trade war tensions will impact risk and result in more AUD weakness than NZD weakness.
- Faster than expected global COVID19 recovery will also negate this outlook as central banks will most likely start to look at raising interest rates together.