The AUD/NZD exchange rate continued its strong rally, reaching a three-year high as concerns about the Reserve Bank of Australia (RBA) rose. The pair soared to a high of 1.1310, in its eighth consecutive week, up by over 6.16% from its lowest level in June this year.
RBA and RBNZ divergence continues
The AUD to NZD exchange rate had been in a strong uptrend in the past few weeks as investors predicted that the Reserve Bank of Australia (RBA) would maintain a hawkish tone in its meeting next week.
The odds of more rate cuts jumped after the Australian Bureau of Statistics (ABS) published a strong inflation report on Wednesday morning. Data shows that the monthly CPI indicator rose to 3% in August, higher than the median estimate of 2.9%.
It has moved further away from the RBA target of 2.0%. Therefore, the most likely scenario is where the bank ignores the recent weak jobs numbers and decides to maintain rates steady when it meets next week. In a note, an analyst said:
“There is now considerable uncertainty about the path to future rate cuts. On balance, we think it likely that the RBA will have room to deliver a 25bp cut in H1-26, although the timing is uncertain.”
A Bloomberg analyst reiterated the same view, saying:
“A second unexpectedly strong monthly inflation reading won’t derail the RBA’s easing cycle, but it should douse expectations of a rate cut at the Sept. 30 meeting. It reinforces our view that the pace of cuts will be gradual.”
RBNZ to continue cutting interest rates
The AUD/NZD exchange rate is expected to continue cutting interest rates in the coming meetings.
The bank slashed interest rates to a three-year low of 3% in its August meeting. Officials also hinted that the bank would continue cutting rates as it signaled that the economy was slowing.
It has now slashed rates by 250 basis points since August 2024 and analysts expect at least two more cuts this year. The most recent numbers showed that New Zealand’s inflation rose to 2.7% in the second quarter from 2.5% in the first quarter.
AUD/NZD technical analysis
The weekly timeframe chart shows that the AUD/NZD exchange rate has been in a strong uptrend in the past few weeks. It has jumped from a low of 1.0653 in April.
The pair has now surged above the important resistance level at 1.1135, its highest level in November last year and February this year
It has moved above the 50-week and 100-week Exponential Moving Averages (EMA), while the Relative Strength Index (RSI) and the MACD indicators have continued soaring.
The pair will likely continue rising as bulls target the important resistance target at 1.1491, its highest level in September 2022. Such a move will be a 1.65% increase from the current level.
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