AUD/NZD bulls taking charge into the RBNZ risk

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  • AUD/NZD bulls lining up for the RBNZ today and potential for higher highs. 
  • RBNZ expectations should be an anchor on the bird, especially as of the fresh lockdown in Auckland.

AUD/NZD ground higher from 1.0840 to 1.0874 overnight which was the highest since October 2018, but then eased back to 1.0845. 

However, it is to be expected into the meeting today where the Reserve bank of New Zealand is expected to come across uber dovish.

There is a biasing to the cross higher when considering the divergence between the two central banks, despite the fact that the RBA has been doing more QE. 

Auckland goes on lockdown

Moreover, New Zealand has put its largest city back into lockdown after recording four new Covid-19 cases, ending a 102-day streak without a local infection.

The BBC reports that a three-day lockdown was swiftly imposed in Auckland after the cases were confirmed. The four new cases are all members of a single-family. None had travelled recently.

The restrictions will come into effect on Wednesday, as authorities scramble to trace contacts of the family.

Auckland residents will be asked to stay at home, large gatherings will be banned, non-essential businesses will be shut, and some social-distancing restrictions will be reintroduced in the rest of the country.

New Zealand has fared better than other countries, recording 1,220 confirmed cases and 22 deaths since the virus arrived in late February.

Meanwhile, it’s far too soon to say what the exact implications are but the return of COVID-19 presents downside risk to the outlook, adding to our expectations for cautious and very dovish tones at the RBNZ MPS today, analysts at ANZ bank argue.

We expect the LSAP will be increased to NZD90bn over 18 months because it is a good strategic decision but that a smaller expansion (of NZD75bn over 12 months) is possible.

The return of community transmission on our shores moves the risks dial even more in favour of our view that the RBNZ will look to do more rather than less, signalling they will do whatever is necessary to support the economy. Attention will also be on what the RBNZ says about other tools. We think they will keep their options open on all fronts, adding to dovishness.

AUD/NZD levels

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