AUD/NZD corrects from lowest levels since 2015
- AUD/NZD weighed on expectations of RBA QE this week.
- COVID-19 forcing central banks tot he lower bounds.
AUD/NZD is trading at 1.1007 between a range of 1.008 and 1.0123 following a bullish correction at 1.0021 which met the 2011 lows. COVID-19 is having a serious impact on the dollar bloc currencies and leaves the Aussie highly exposed when considering the central bankes and divergence between the Reserve Bank of New Zealand and the Reserve Bank of Australia.
The RBNZ cut its cash rate from 1% to 0.25% and didn’t rule out further measures if needed. The central bank said the OCR will remain at this level for the next 12 months and that should any further stimulus be required, it will come in the form of a Large Scale Asset Purchase (LSAP) programme of government bonds rather than further OCR cuts.
QE from RBA on the cards this week
The next RBNZ meeting will now take place in May, instead of 25 March, following the emergency cut and it could find some support after taking significant losses YTD as aggressive Fed easing turns yield differentials in its favour and the RBA is now left to play catch up to the lower bound before implementing QE, an outcome that would weigh heavily on AUD. The RBA has also added a sizeable amount of liquidity to repo market. Contributing to this de-risking will be the additional actions the RBA takes at its ‘special’ meeting on Thursday. It is likely to cut to the ELB and unveil QE.