AUD/NZD biased upward on central bank divergence

The drift higher has started due to the contrasting central bank themes. At the time fo writing, AUD/NZD is trading at 1.0892 within a 1.0877 and 1.0895 range. 

Following the Reserve Bank of Australia’s relaxed approach, in contrast, the Reserve Bank of New Zealand was very clear that it wanted a lower currency. 

The RBNZ kept its cash rate at 0.25% as fully expected but provided a mild surprise by extending its QE program from NZD60bn to NZD100bn.

The central banks, however, did extend the timeframe of the purchases to 2022. 

The NZD moved 30-40bps lower immediately but has since recovered part of the move.

Given how dovish the tone was, we see a real risk that the NZD weakens further in coming weeks as the gravity of today sinks in.

The pace of bond purchases to step-up and weigh

 Now that the RBNZ has adopted a tactical approach to bond purchases and specifically mentioned its desire to actively get the bond curve lower and flatter, we suspect that we will see the pace of bond purchases step up, which will drive long end rates lower, and that will eventually weaken the Kiwi, USD gyrations notwithstanding,

analysts at Westpac offered.

Commodities in focus

Meanwhile, AUD/USD has been under pressure at the time from renewed pressure on gold prices, probing 0.7110, about -40 pips on the day. This kept a lid on AUD/NZD.

 Spot gold broke below USD1,900/oz as investors took profits from the months-long rally yesterday.

However, new inflationary pressures following the US inflation data, investors got back involved at bargain prices. Gold subsequently rallied to USD1,950/oz before further profit-taking saw prices ease into the close.

Al in all, a risk-on tone across markets helped boost sentiment in the commodity markets, with the ANZ China Commodity Index ending the session up 0.2%, analysts at ANZ Bank explained.

The energy sector led the complex higher, with crude oil rising strongly. Copper led the industrial metals sector higher, offsetting falls in nickel and zinc. Agriculture was also stronger, driven by gains in corn, soybeans and palm oil. Precious metals also managed to eke out a small gain, with gold rebounding while silver struggled. Bulk commodities was the only sector to end in the red, with iron ore and coking coal marginally lower.

Aussie Jobs data next in line 

The Australian labour market is the focus for the day. 

Employment is expected to rise by 40k and the unemployment rate to lift to 7.8%.

AUD/NZD levels