The commodity-related G10 currencies of the Australian and New Zealand dollars have outperformed overnight driven by a hawkish repricing of domestic central bank rate expectations. It has helped to lift the AUD/USD and NZD/USD rates back above the 0.7400 and 0.7000 levels respectively. As rate hike expectations are earlier in New Zealand, economists at MUFG Bank continue to favour NZD over AUD.
Hawkish central banks reinforce rebound in commodity currencies
“The stronger AUD has been encouraged by the RBA’s decision to stick to their plan to begin tapering the pace of QE purchases. In today’s policy statement the RBA highlighted that the economic recovery has been stronger than expected.”
“The RBA still sees the economy continuing to grow strongly again next year as it benefits from significant additional policy support and the vaccination programme makes further progress, although it does acknowledge that the near-term outlook is uncertain. The RBA expects some increase in the unemployment rate due to the current lockdowns but notes that most of the adjustment will take place through a reduction in hours worked and in labour force participation.”
“Overall, the developments have eased downside risks for the Australian dollar in the near-term, and should help it to begin bottoming out following the sell off over the last couple of months.”
“The New Zealand dollar has also benefited overnight as market participants have further increased speculation that the RBNZ will begin raising rates as soon as at their next policy meeting on 18th August.”
“The need for policy tightening is more imminent in New Zealand. We continue to favour the New Zealand dollar over the Australian dollar as the RBNZ is set to begin raising rates well ahead of the RBA.”