AUD/NZD slides sharply to near 1.0620 on upbeat New Zealand Trade Balance

• AUD/NZD has dropped sharply to near 1.0620 amid the release of upbeat NZ Trade Balance data.
• The RBNZ is to end its most aggressive tightening cycle after raising interest rates one more time by a quarter point next week.
• Higher interest rates by the RBA have started impacting the Australian labor market.

The AUD/NZD pair has witnessed extreme selling pressure after the release of upbeat Trade Balance data (April). Monthly Trade Balance (in NZ terms) has reported a trade surplus of $427M vs. a trade deficit of -$1,586M. However, the annual trade deficit has landed at -$16.8M, remaining close to the former release.

Investors’ focus is majorly on the interest rate decision by the Reserve Bank of New Zealand (RBNZ), which is scheduled for May 24. According to a Reuters poll, RBNZ Governor Adrian Orr will hike interest rates by a final quarter point on Wednesday and then end its most aggressive tightening cycle since adopting the cash rate in 1999. Also, the RBNZ would keep its Official Cash Rate steady at 5.50% (after a quarter-point hike on May 24) till year-end.

New Zealand’s inflation is still hovering around 6.7% as recorded in March, three times more than the desired rate. And, now a budget with higher spending of 11.5 billion NZ dollars in comparison with tax receivables is going to fuel up the overall inflation ahead. Fiscal support to the overall inflation would keep the RBNZ on its toes to keep the monetary policy as restrictive as possible.

On the Australian Dollar front, investors anticipate that the Reserve Bank of Australia (RBA) would return to the neutral interest rate policy as higher interest rates have started impacting the Australian labor market. In April, the Australian labor market witnessed a decline of 4.3k employees while the street was anticipating a jump of 25K. The Unemployment Rate has also jumped firmly to 3.7%.