AUD/NZD builds cushion above 1.0800 as focus shifts to RBA Lowe’s speech, RBNZ policy eyed

• AUD/NZD is showing some signs of a reversal above 1.0800 ahead of RBA Lowe’s speech.
• The RBNZ is expected to hike its OCR by 75 bps to 4.25%.
• A bigger rate hike announcement by RBNZ will widen RBNZ-RBA policy divergence ahead.

The AUD/NZD pair is displaying an inventory accumulation phase in a range of 1.0810-1.0830 in the early Tokyo session. The asset is showing topsy-turvy moves as investors have shifted their focus toward the speech from Reserve Bank of Australia (RBA) Governor Philip Lowe. While the interest rate decision by the Reserve Bank of New Zealand (RBNZ) on Wednesday will be the crucial trigger for the cross ahead.

For making an informed decision, investors are awaiting the speech from the RBA policymaker. The speech will provide interest rate guidance to combat the historic surge in inflationary pressures. The inflation rate reached 7.3% in the third quarter, which forced the Australian central bank to lift its price growth guidance to 8.0%. However, the RBA continued its rate hike pace at 25 basis points (bps) to keep economic prospects solid along with the agenda of bringing price stability.

On the kiwi front, the announcement of the monetary policy by the Reserve Bank of New Zealand (RBNZ) will escalate RBNZ-RBA policy divergence. RBNZ Governor Adrian Orr has already announced five consecutive 50 basis points (bps) rate hikes to 3.5% and has no intention to pause rate hikes amid mounting price pressures.

A Reuters poll on RBNZ’s rate hike projections claims an increment in the Official Cash Rate (OCR) by 75 bps this time. An occurrence of the same will push the OCR to 4.25% and extremely diverge from RBA’s policy structure.

The move could strengthen the New Zealand Dollar ahead but will leave less room for more rate hikes by the Reserve Bank of New Zealand. Also, this will shift more responsibilities on economic dynamics to play ahead.