RBNZ Hikes Again

At the November RBNZ meeting held overnight, the bank made good on prior hawkish signals and hiked rates by .75bps, in line with market expectations. The move marks the largest rate increase in RBNZ history, taking rates back up to 4.25% from 3.5% prior. Alongside the rate hike, the RBNZ was also firmly hawkish in its outlook and guidance, citing the need to stay tough on inflation. The latest consumer price data showed that CPI hit 7.2% in the three months to September, marking a thirty year high.

Ongoing Inflation Battle

Looking ahead, the RBNZ outlined the difficulties facing it as it tries to balance its efforts to tame inflation with protecting the economy. The latest set of RBNZ economic forecasts project that the domestic economy will likely fall into recession by Q3 next year. However, the RBNZ noted that any attempts to avoid recession by slowing the pace of rate hikes would only see inflation become entrenched at higher levels requiring more aggressive rates action later, having a worse impact on growth.

RBA vs RBNZ

On the back of the meeting, the market is expecting the RBNZ to push ahead with further rate hikes in coming months. In contrast, the RBA has recently pivoted on rates, slowing the pace of its tightening over the last two meetings. This policy divergence between the two central banks is likely to keep AUDNZD pressured lower near-term.

Technical Views

AUDNZD

The reversal lower in AUDNZD has seen the market breaking below the rising trend line from Q4 2022 lows and below the last key support at the 1.0828 level. With momentum studies bearish and the retail market heavily long here, there is plenty of room for a deeper push lower towards the 1.0618 level next while the market remains below the broken bullish trend line.