AUD/NZD gallops above 1.0800 after RBA’s surprise rate hike of 25bps to 3.85%

• AUD/NZD has soared to 1.0830 as RBA has hiked rates by 25 bps against the anticipation of a neutral monetary policy.
• The RBA cited that further policy tightening was needed to anchor inflation expectations.
• A sustained pace in the NZ Employment cost index could force the RBNZ to remain hawkish ahead.

The AUD/NZD pair has witnessed stellar buying interest after a surprise announcement of 25 basis points (bps) interest rate hike by the Reserve Bank of Australia (RBA). An interest rate hike of 25 bps has pushed the Official Cash Rate (OCR) to 3.85%.

In the commentary, RBA stated that further policy-tightening was needed to anchor inflation expectations and the central bank is sticking to its agenda of achieving price stability.

The street was anticipating a continuation of the neutral policy stance by RBA Governor Philip Lowe as Australia’s Consumer Price Index (CPI) is consecutively declining for the past three months. From the historic high of 8.4%, monthly Australian inflation has already trimmed to 6.3% in March. In April’s monetary policy, RBA policymakers announced that the Australian economy would slow down further, which will weigh heavily on inflationary pressures.

Going forward, investors will shift their focus on Australian Trade Balance (March) data, which will release on Thursday. Monthly Trade Balance data is seen declining 12,750M from the former release of 13,870M. A weaker-than-anticipated Trade Balance data would impact the Australian Dollar.

On the New Zealand Dollar front, first-quarter Employment data will be keenly watched. The street is anticipating a steady Employment Change at 0.2%. While the Unemployment Rate is seen rising to 3.5% from the former release of 3.4%.

Apart from them, the quarterly Labor Cost Index is seen unchanged at 1.1%. And annual earnings data is expected to accelerate to 4.6% vs. the prior release of 4.3%. A sustained pace in the Employment cost index could force the Reserve Bank of New Zealand (RBNZ) to remain hawkish ahead.