AUD/NZD: on the eve of the RBNZ meeting
The publication of important macro data in today's economic calendar is almost not planned. The only exception is the publication at 12:30 (GMT) of monthly data from the Canadian labor market, which will cause an increase in volatility at the beginning of today's US trading session, especially in the quotes of the Canadian dollar. We wrote about this in one of our previous reviews (for April 06).
But next week, three of the world's largest central banks (of New Zealand, Canada, the Eurozone) will hold their meetings on monetary policy issues.
In particular, the decision of the RBNZ on the interest rate will be published on Wednesday.
On the eve of this event, the New Zealand currency is weakening, and not only against its main competitor, the US dollar, but also in cross-pairs with other major currencies, in particular, against the Australian dollar. In general, the AUD/NZD pair is a rather interesting and stable cross pair. If reversals occur in it, then they are of a long-term nature, facilitating technical analysis. Both currencies (the New Zealand dollar and the Australian dollar) are highly liquid currencies and both are commodities. The AUD/NZD pair is actively traded throughout the trading day. The highest peak of trading activity in AUD/NZD and the largest trading volumes occur during the Asian session (01:00 - 08:00 GMT).
Australia's most important export commodities are iron ore, coal, liquefied gas, gold, agricultural products, while those of New Zealand are products of the timber industry and meat and dairy complex, with up to 20% of New Zealand's total exports being exports of dairy products. Therefore, the dynamics of commodity prices has a strong influence on the quotes of the Australian and New Zealand dollars, in addition to the fact that Australia and New Zealand are the closest trade and economic partners.
Despite the fact that reversals in daily trend of the pair are less common than in other currency pairs, AUD / NZD intraday volatility averages 90-100 points, but can rise sharply during the release of important macroeconomic indicators for New Zealand, Australia, and also for their trade and economic partners - China, Japan, the USA.
Being commodity currencies, NZD and AUD are very sensitive to the situation on the global commodity market. At the same time, the dynamics of quotations of these currencies, as well as most others, is influenced by fundamental macro data (primarily data on GDP, inflation) and the policies of central banks. NZD and AUD are getting support from rising global commodity prices amid growing risks associated with the introduction of new sanctions against the Russian economy, in particular on imports of Russian energy resources, which, in turn, may lead to a new round of inflationary pressure.
As we noted above, next week (Wednesday) the next meeting of the New Zealand central bank will take place.
Subdued economic growth (New Zealand GDP growth has slowed since the second half of 2018) and a weakening labor market, as well as an escalation of international trade wars and a worsening global economic outlook, have forced the Reserve Bank of New Zealand to keep interest rates low for a long time. An additional and unforeseen risk to the global and New Zealand economies was the coronavirus epidemic.
However, following the results of the meetings held in October and November, the Reserve Bank of New Zealand (for the first time in 7 years) raised the key interest rate to 0.50%, and then to 0.75%. In February 2022, the interest rate was raised again to 1.0% to ease inflation and contain rapidly rising house prices. Earlier, the RBNZ said that the economy no longer needs the current level of monetary stimulus.
The RBNZ is expected to refrain from making changes to its monetary policy at this meeting for the time being, but may speak in favor of a further increase in the interest rate at the next meetings.
The RBNZ rate decision will be released at 02:00 GMT, and NZD watchers need to be prepared for a sharp increase in volatility during this time frame.
The RBA meeting ended this week, last Tuesday. As expected, its leaders left the parameters of monetary policy unchanged, pointing to the positive dynamics of the labor market and the risks of further price increases.