MUFG says the policy gap between Australia and New Zealand continues to favour the Australian dollar, with rate expectations diverging sharply following recent central-bank moves.
The RBA left the cash rate at 3.60% last week, a level the Bank again described as “mildly restrictive” and close to neutral. MUFG notes that stronger Q3 CPI and firmer domestic data have seen Australian rate markets all but abandon expectations of further cuts. Only around 9bps of easing are now priced in for next year, reflecting growing scepticism that the RBA will lower rates again in this cycle — a shift that is helping support the AUD.
Across the Tasman, the RBNZ has already moved aggressively. The central bank cut the OCR by 50bps last month to 2.50% and explicitly kept the door open to more easing, saying it “remains open to further reductions” to return inflation sustainably to the 2% midpoint.
Fresh labour market weakness has reinforced that bias. New Zealand’s Q3 unemployment rate rose to 5.3%, a new cyclical high, prompting markets to price in the possibility of another sizeable cut as early as this month. MUFG notes that traders are even assigning a small probability to a back-to-back 50bp move.
The widening policy divergence, MUFG says, continues to tilt momentum in favour of AUD/NZD.
