FX Viewpoint | AUD and NZD: Doves and Hawks | Article – HSBC VisionGo
- The NZD has jumped against the AUD after a more hawkish-than-expected RBNZ meeting
- The RBNZ will end QE this month, while the RBA will start to taper QE from September
- Support for the AUD and NZD could also come from risk sentiment and commodities, in our view
The RBNZ will end QE this month, much earlier than expected
The NZD has outperformed the AUD so far this year. Its month-to-date outperformance has become more pronounced after a more hawkish-than-expected Reserve Bank of New Zealand (RBNZ) meeting on 14 July. The RBNZ left its cash rate unchanged at 0.25%, and the Funding for Lending Programme (term lending) unchanged, but committed to ending the large-scale asset purchase programme (QE) by 23 July, much earlier than expected. The central bank also stated its concerns that the recent house price gains were “unsustainable”. Our economists expect the first rate hike in New Zealand to come in 3Q21, and we believe there is still room for the NZD to capitalise over the near term.
The RBA repeated its dovish 2024 cash rate guidance but will begin to taper QE from September
Across the Tasman, the NZD’s neighbour is faced with a somewhat different situation. The Reserve Bank of Australia (RBA) has remained resolutely dovish. At its 6 July meeting, the RBA repeated its guidance that the Board does not expect conditions in Australia to be met for a cash rate increase before 2024. The RBA also left its Cash Rate Target unchanged at 0.10%, as expected and maintained its 3-year yield target at 0.10%, and extended QE but included a slight taper to AUD4bn per week (from AUD5bn currently) from September. In our economists’ view, the QE adjustment is a hat-tip to the better recent economic data but the key is the still dovish 2024 cash rate guidance.
Support for the AUD and NZD could come from risk sentiment and commodities, in our view
Meanwhile, other likely key drivers for both AUD and NZD look favourable in the months ahead. With risk sentiment likely to remain positive on the back of an ongoing, albeit plateauing, global recovery, we think the AUD and NZD have room to gain. Further support could also come through the upswing in commodity prices this year. As such, we remain bullish on the AUD and NZD in the months ahead.
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