RBNZ vs RBA

Last night's unexpected decision by the RBNZ to cut rates by 25 bps for the first time in four years triggered prolonged NZD losses mainly due to the clear message in the statement noting "…further easing may be appropriate” despite the 21% decline in the kiwi since last summer. The statement caused a shift in the market's thinking to anticipate a second RBNZ rate cut to occur as early as next month. The sharp easing patterns in Asia and throughout NZ's partners combined with the RBNZ's relatively lofty rates, bolsters augments the prospect for the central bank to reverse all of last year's 100-bp in rate hikes by early next year.

On the Aussie side, stronger than expected 42K jump in May employment and the plunge in the unemployment rate to a 12-month low at 6.0%, has sent the Aussie soaring across the board despite downward April revision. After the latest jobs figures and this week's speech from RBA governor Glenn Stevens, the RBA is no longer expected to cut interest rates this summer. That is especially the case when Australia's macroprudential policies have been slower to take off than in New Zealand. The charts below highlight there is further downside ground for RBNZ than for RBA rates, which correlates clearly between the AUDNZD cross and the RBA-RBNZ spread. Last night's Premium Insights trade in AUDNZD charts a particular path, considering semblance of stabilisation on the price front in China and improving dynamics in copper.

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