AUD/NZD: Consolidating the RBA surprise surge in 1.03 handle

• For AUD bulls, could be a little too soon to be calling a victory.
• AUD/NZD vulnerable to a sizeable correction despite RBA’s optimism.

AUD/NZD is consolidating the Reserve Bank of Australia QE ‘taper’ surge around 1.0332 at the time of writing having travelled from a pre-RBA area at around 1.0250 to a post-meeting high of 100 pips higher. The Aussie has released a lot of pent-up tension in these recent days for the month of April taking AUD/USD right the way back to the 0.62 handle and its prior corrective highs while the NZD still has some work to do, potentially weighing on the cross. 

While there was no surprise that the Reserve Bank Board confirmed its commitment to holding the target cash rate and the three-year bond rate at 0.25%, the  Statement indicated that the RBA assesses that the policies have been successful while pointing out that the central bank’s objective has been achieved by purchasing $36 billion of government and semi-government bonds. This leads the markets to believe that tapering would be on the way and sent the AUD on a rampage. 

Meanwhile, it was another rollercoaster ride in both the equities and commodity markets overnight as investors weighed up slowing rates of new coronavirus cases against the ongoing economic impact. More on that here: Wall Street Close: US stock traders taken for a ride, benchmarks end in a sea of red.

For commodities, analysts at ANZ Bank said that the ANZ China Commodity Index eked out a small gain, rising 0.2%: “Industrial metals were the best performing sector, driven by a sharp rise in copper and nickel. The bulk commodity sector was up, as iron ore and coking coal rose. Energy saw another sell-off in crude oil. Agriculture was weaker. Crude oil prices fell on doubts about the ability of oil producers to reach agreement on production cuts.”

“Saudi Arabia and Russia continue to hammer out a deal. Reports suggest they are focused on a three-month cut to output, although volumes have not been discussed. What is clear is that the US must be involved. President Trump said he hasn’t been approached by OPEC yet. But following his meeting with oil executives over the weekend, the likelihood of them agreeing to a voluntary cut to output looks unlikely.”

Too soon to call a victory?

While the RBA was upbeat, it could be a little too soon to be calling a victory and that leaves the AUD vulnerable given its close proximity to world trade in commodities. “We expect that the Australian economy will contract by 8.5% in the June quarter with the unemployment rate peaking at 9%. Without the JobKeepers Payment the unemployment rate would have reached 17% in the June quarter,” analysts at Westpac explained. 

AUD/NZD levels