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Economists at Credit Suisse continue to see monetary policy as the more prominent driver of AUD/NZD and look to fade rallies above 1.0850 ahead of the 3 November Reserve Bank of Australia (RBA) meeting and to buy dips to 1.0730 closer to the 10 November Reserve Bank of New Zealand decision. 

Key quotes

“Crucially, we do not foresee in the current range of possible results in an election outcome that warrants a sharp change in expectations around NZ’s growth outlook and fiscal policy. Conversely, we continue to view the RBNZ’s monetary policy as the most prominent driver of NZD price action, especially against AUD.”

“The recent dovish shift in RBA policy expectations has not been lost on the RBNZ, as suggested by comments on 7 October by RBNZ Chief Economist Ha about preferring “to do too much too soon than too little too late”. The comment will likely generate more attention on the RBNZ decision on 11 November, which is already expected to bring some clarity on the previously announced Funding for Lending scheme. We do not rule out the possibility of further dovish developments on that date. However, the calendar for RBNZ speakers between now and then is bare and the 3 November RBA decision likely stands out as the more important near-term event for AUD/NZD.” 

”Dovish measures by the RBA, especially if in the form of a sizeable QE extension, can prove tactically negative for AUD/USD and for AUD/NZD. Therefore, in the light of low expectations of FX impact from the elections, we would be inclined between now and the 3 Nov RBA decision to fade rallies in AUD/NZD above 1.0850, and see value instead in buying dips to the Sep 2020 lows around 1.0730, at which point positioning for a dovish RBNZ outcome on 11 Nov will in our view become attractive.”