AUD/NZD gallops above 1.0650 as RBNZ hikes OCR by 25 bps to 5.5% as expected

• AUD/NZD has shown a stellar run above 1.0650 after the RBNZ hiked its OCR by 25 bps to 5.5%.
• The RBNZ was expected to hike its OCR further as NZ inflation has not shown evidence of decent softening.
• Australia’s Unemployment Rate has soared sharply to 3.7% as firms are anticipating a bleak economic outlook due to higher interest rates.

The AUD/NZD pair has soared dramatically as the Reserve Bank of New Zealand (RBNZ) has hiked its Official Cash Rate (OCR) by 25 basis points (bps). RBNZ Governor Adrian Orr has pushed its OCR to 5.50%, in line with the expectations of the street.

Earlier, Stats New Zealand reported a steep contraction in Q1 Retail Sales data. Households’ retail demand contracted by 1.4% while the street was anticipating a contraction of 0.4%. NZ Retail Sales contracted by 0.6% in the last quarter of CY2022. A spree of a decline in retail demand would weigh heavily on inflationary pressures ahead.

Analysts at ING stated “Markets are pricing in a peak at around 5.80%, but we think the RBNZ can deliver an extra bit of hawkishness and signal tightening until the 6.00% mark.

Investors should note that the Kiwi economy is currently operating at quarterly inflation of 6.7%, significantly higher than desired levels. NZ inflation softened to 6.7% in the first quarter of CY2023 from sticky inflation levels around 7.2%.

On the Australian Dollar front, signs of a slowdown in the economy are accelerating due to higher interest rates from the Reserve Bank of Australia (RBA). Australian Employment and economic activities have been hit hard in the battle between higher inflation and higher interest rates by the RBA Governor Philip Lowe.

Australia’s Unemployment Rate has soared sharply to 3.7% as firms are anticipating a bleak economic outlook due to higher interest rates.