RBNZ end QE, leaving AUDNZD vulnerable ahead of AU jobs data

A second consecutive hawkish surprise from an RBNZ board meeting today as the bank elected to keep rates on hold at 0.25% as widely expected. However, guidance was changed to reflect that the current level of accommodation could be wound back and that the Large Scale Asset Purchase program (LSAP) would end next week the 23rd of July.

FOREX 3

The early termination of the LSAP or QE comes as the biggest surprise. The purpose of the LSAP was to lower long-term interest rates as well as the exchange rate and to underpin economic growth and inflation. The program was scheduled to run until June 2022. 

“The Committee agreed that further asset purchases under the LSAP program were no longer necessary for monetary policy purposes and directed staff to halt purchases by 23 July 2021. 

The bank's assessment of economic activity was upgraded and in the final paragraph of the press release, the following forward guidance was noted: “the Committee agreed that the level of monetary stimulus could now be reduced to minimise the risk of not meeting its mandate.”

As outlined in yesterday's preview, the expectation heading into today's meeting was that the RBNZ would endorse market pricing of a first interest rate hike by November 2021. However, it is now clear that meetings in mid-August and early October are also live. Even more so if Q2 inflation data on Friday is higher than expected. 

Following the announcement, NZDUSD rallied from .6965 to a high near .7020, building on the signs of a base noted yesterday near .6920. AUDNZD has fallen from 1.0700 to a low of 1.0626, leaving it vulnerable to a deeper decline pending the outcome of tomorrow's Australian labour market data for June. 

The market is looking for employment to rise by 25k and the unemployment rate to fall to 5.0%. The labour market remains the main focus of the RBA as it looks for evidence that the faster than expected improvement in the labour market is feeding through into higher wages. 

Providing there is no outsized gain in employment like the one seen last month, the expectation is for AUDNZD to continue lower towards the year-to-date low at 1.0540, with risks below here towards 1.0418.

RBNZ end QE leaving AUDNZD vulnerable ahead of AU jobs data

Source Tradingview. The figures stated areas of the 14th of July 2021. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

Build your confidence risk free

More from AUD

Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.