The hawkish tone of the 7 Feb RBA decision can bring new vigour to bullish AUD positions. With less than 25bp of hikes priced at Mar and Apr meetings, I see scope for monetary policy to be a more AUD-supportive factor. I hold my end-Q1 AUDUSD target unchanged at 0.7150 and trim my range from 0.6600-0.7300 to 0.6800-0.7300. 
I also hold on to my 1.1200 AUDNZD target and set a stop loss on the view at my entry level of 1.0770. While I still see the hypothesis of the RBNZ shifting less hawkish at its 22 Feb meeting as valid, the risks to the view have increased. The Q1 RBNZ inflation expectations survey on 14 Feb is a key source of risk.

This newfound RBA hawkishness also should in my view drive renewed interest in cross rate expressions where monetary policy divergences play a prominent role: AUDNZD is at the top of this list. I have held a bullish stance and a 1.1200 target for the pair since the beginning of the year, and while price action has been generally in line with my views, the real test for the position will be in 2 weeks, when the RBNZ holds its first interest rate decision of the year, on 22 Feb. OIS markets are pricing in now close to 50bp worth of hikes in Feb, down from closer to 75bp at the beginning of the year. Interestingly, the consensus of analysts polled by Bloomberg for the meeting is still firmly in favour of a 75bp hike. I suspect this might change as we near the meeting date.

AUD & NZD: Slowly but Surely

Feb 13 2023

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