The recent monetary policy statement released by the Reserve Bank of New Zealand (RBNZ) has caused a significant shift in the performance of the Kiwi against its major counterparts, particularly the Australian Dollar. The RBNZ, for the eighth consecutive meeting, decided to keep its official cash rate at 5.50%. However, the surprising aspect was the change in the tone of the statement from hawkish to dovish. This shift in tone was a stark contrast to the previous statement in May, where the RBNZ officials discussed the possibility of another interest rate hike and hinted at the first rate cut not occurring until after the second quarter of 2025.
The sudden dovish shift in the RBNZ’s tone had an immediate impact on the Kiwi’s performance in the market. The New Zealand Dollar experienced a sharp intraday sell-off against the US dollar, slumping to a 4-week low. The Kiwi emerged as the weakest currency against the US dollar, with a 5-day rolling performance showing a significant decline. Additionally, the short-term interest rate swaps market has now priced in two rate cuts by the RBNZ before the end of 2024, leading to a drop in the 2-year New Zealand government bond yield by 15 basis points. This decline has also narrowed the yield spread between the 2-year Australian and New Zealand government bonds, indicating a potential outperformance of the Aussie dollar against the Kiwi in the near future.
From a technical analysis perspective, the AUD/NZD cross pair has made a significant move by breaking above its medium-term range resistance that had been holding back previous rallies since December 2023. The MACD trend indicator has been steadily trending upwards above its zero centerline since late June, suggesting a medium-term uptrend phase has likely begun. If the key support level of 1.1000 holds, the AUD/NZD could see further upside towards long-term range resistance levels set since July 2015. However, a failure to hold at 1.1000 could signal a bearish turn, leading to a corrective downward drift towards the next support levels at 1.0890 and 1.0735.
Given the recent developments in the RBNZ’s monetary policy stance and the technical breakout in the AUD/NZD pair, there is a possibility of further upside in the pair towards the long-term range resistance levels. The narrowing of the yield spread between Australian and New Zealand government bonds could also support the Aussie dollar against the Kiwi in the coming days. However, any unexpected shifts in monetary policy or economic data releases could alter the current trajectory and lead to potential reversals in the AUD/NZD pair’s performance.
The recent dovish tilt in the RBNZ’s monetary policy statement has had a significant impact on the Kiwi’s performance against the Aussie dollar. The technical outlook for the AUD/NZD pair suggests a potential bullish trend in the medium to long term, supported by the recent breakout and favorable market conditions. Traders and investors will need to closely monitor any further developments in monetary policy and economic indicators to gauge the future direction of the AUD/NZD pair.