The RBNZ diverges from the RBA – DBS

NZD/USD declined 0.6% after the RBNZ stating that it expects inflation to return to the 1-3% target range in 2H. The RBNZ is also diverging from the RBA, where markets still see a risk of another rate hike due to stubborn inflation, DBS FX & Credit Strategist Chang Wei Liang notes.

A RBNZ rate cut in August increasingly possible

“NZD/USD declined 0.6% after the RBNZ surprised markets by stating that it expects inflation to return to the 1-3% target range in 2H, adding that it could temper monetary restraint with a decline in inflation. Markets are now pricing in a 44% chance of a rate cut in August.”

“The RBNZ is also diverging from the RBA, where markets still see a risk of another rate hike due to stubborn inflation. AUD/NZD has leapt towards 1.11, supported by widening short-term AUD-NZD rate differentials.”