FX Viewpoint | AUD and NZD: Doves and Hawks | Article – HSBC VisionGo

AUD and NZD: Doves and Hawks
Finance  ·    ·  6 mins read

  • 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.

Disclosure appendix

This document is for information purposes only and should not be regarded as an offer to sell or as a solicitation of an offer to buy the securities or other investment products mentioned in it and/or to participate in any trading strategy. Information in this document is general and should not be construed as investment advice, given it has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investors should, before acting on it, consider the appropriateness of the information, having regard to their objectives, financial situation and needs and, if necessary, seek professional investment and tax advice.
Certain investment products mentioned in this document may not be eligible for sale in some states or countries, and they may not be suitable for all types of investors. Investors should consult with their HSBC representative regarding the suitability of the investment products mentioned in this document and take into account their specific investment objectives, financial situation or particular needs before making a commitment to purchase investment products. 
The value of and the income produced by the investment products mentioned in this document may fluctuate, so that an investor may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls in value that could equal or exceed the amount invested. Value and income from investment products may be adversely affected by exchange rates, interest rates, or other factors. Past performance of a particular investment product is not indicative of future results.
HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments (including derivatives) of companies covered here on a principal or agency basis.
Whether, or in what time frame, an update of this information will be published is not determined in advance.
Additional disclosures
  1. This report is dated as at 16 July 2021.
  2. All market data included in this report are dated as at close 15 July 2021, unless a different date and/or a specific time of day is indicated in the report.
  3. HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.
  4. You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument, and/or (iii) measuring the performance of a financial instrument or of an investment fund.
Disclaimer
This document is prepared by The Hongkong and Shanghai Banking Corporation Limited (‘HBAP’), 1 Queen’s Road Central, Hong Kong. HBAP is incorporated in Hong Kong and is part of the HSBC Group. This document is for general circulation and information purposes only. This document is not prepared with any particular customers or purposes in mind and does not take into account any investment objectives, financial situation or personal circumstances or needs of any particular customer. HBAP has prepared this document based on publicly available information at the time of preparation from sources it believes to be reliable but it has not independently verified such information. The contents of this document are subject to change without notice.
This document is not investment advice or recommendation nor is it intended to sell investments or services or solicit purchases or subscriptions for them. You SHOULD NOT use or rely on this document in making any investment decision or decision to buy or sell currency. HBAP is not responsible for such use or reliance by you. You SHOULD consult your professional advisor in your jurisdiction if you have any questions regarding the contents of this document.
You SHOULD NOT reproduce or further distribute the contents of this document to any person or entity, whether in whole or in part, for any purpose. This document may not be distributed to the US, Canada or Australia or any other jurisdiction where its distribution is unlawful.
Hong Kong
In Hong Kong, this document is distributed by HBAP to its customers for general reference only. HBAP is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use or reliance of this document. HBAP gives no guarantee, representation or warranty as to the accuracy, timeliness or completeness of this document.
Miscellaneous
Notwithstanding this document is not investment advice, please be aware of the following for the sake of completeness. Past performance is not an indication of future performance. The value of any investment or income may go down as well as up and you may not get back the full amount invested. When an investment is denominated in a currency other than the local currency of an investor, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. Where there is no recognised market for an investment, it may be difficult for an investor to sell the investment or to obtain reliable information about its value or the extent of the risk associated with it.
This document contains forward-looking statements which are, by their nature, subject to significant risks and uncertainties. Such statements are projections, do not represent any one investment and are used for illustration purpose only. Customers are reminded that there can be no assurance that economic conditions described herein will remain in the future. Actual results may differ materially from the forecasts/estimates. No assurance is given that those expectations reflected in those forward-looking statements will prove to have been correct or come to fruition, and you are cautioned not to place undue reliance on such statements. No obligation is undertaken to publicly update or revise any forward-looking statements contained in this document or any other related document whether as a result of new information, future events or otherwise.
The Hongkong and Shanghai Banking Corporation Limited, its affiliates and associates and their respective officers and/or employees, may have interests in any products referred to in this document by acting in various roles including as distributor, holder of principal positions, adviser or lender. The Hongkong and Shanghai Banking Corporation Limited, its affiliates and associates, and their respective officers and employees, may receive fees, brokerage or commissions for acting in those capacities. In addition, The Hongkong and Shanghai Banking Corporation Limited, its affiliates and associates, and their respective officers and/or employees, may buy or sell products as principal or agent and may effect transactions which are not consistent with the information set out in this document.
© Copyright 2021. The Hongkong and Shanghai Banking Corporation Limited, ALL RIGHTS RESERVED. No part of this document may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of The Hongkong and Shanghai Banking Corporation Limited.
HSBC
HSBC