- AUD / NZD reaches new heights ahead of Thursday’s key events.
- 1.0772 is an extension of the RBA and RBNZ rally and mid-March qualifiers.
AUD / NZD will be the cross to watch today. It is currently trading at the top of its range at the end of 1.07, after dropping from a low of 1.0754 to a high of 1.0772. The cross has been bullish since mid-March and the facts are starting to confirm the previous consensus.
AUD / NZD rebounded below par in March as the Reserve Bank of Australia was less likely to engage in a series of larger-scale QEs or move to negative rates when compared to the Reserve Bank of New Zealand. Lately, RBA continued to reduce its bond purchases.
The RBA has chosen not to buy Monday or Wednesday this week. However, the RBNZ has just announced that it is effectively doubling its QE program to NZD 60 billion in purchases over the next year and that negative rates are not impossible.
“It will be interesting to see how the RBA manages the liquidity impact of AOFM’s record syndication settlement of AU $ 19 billion for the new line in December 2030 “, analysts at ANZ Bank said.
Historically, the RBA would “sterilize” the impact this has on the foreign exchange settlement (ES) balances. But with the abundance of excess ES balances, this may not be the case this time. In this case, the excess balance will decrease sharply when the obligation is settled.
Seedlings continued to grow richer to bond, although this trend stopped on Wednesday after the RBA decided not to buy seedlings. This break could be extended if the RBA remains sidelined in the coming weeks. Primary supply has slowed, at least for now, which will contribute to relative performance.
SSA supply has increased slightly over the past week. On a cross-market basis, tapping the AUD market may be a more attractive proposition for SSA issuers now that spreads have tightened.
Key upcoming events
Meanwhile, for the next day, we have both Australian job data and the NZ budget. First of all for an overview of the Aussie event, see here: What is the unemployment rate in Australia and how could it affect AUD / USD?
Subsequently, the New Zealand government will publish the 2020 budget. Westpac analysts say they are looking for an operating deficit close to -10% of GDP for the next two years:
In addition, the government is expected to announce billions of dollars in new spending to support the recovery phase. Net public debt is expected to reach 150% of GDP by 2024, and bond issuance could increase by New Zealand dollars 60 billion over the next two years. March net migration is expected to decline sharply due to border closures. RBNZ Governor Orr testifies before the select committee of Parliament on the MPS.