AUD / NZD is currently trading at 1.0684 following an increase in the Reserve Bank of New Zealand interest rate decision and the expansion of its QE program to NZD $ 60 billion.
the RBNZ, as expected, left the rates on hold but declared themselves ready to lower the cash rate further. However, the Committee reiterated its guidance that the The OCR will remain at 0.25% until the start of 2021.
Key Notes from the statement to follow:
Highlights of the RBNZ statement
The Committee reached consensus for:
- expand the LSAP program to purchase up to a maximum of $ 60 billion over the next 12 months;
- delegate to staff the composition and pace of purchases under the LSAP program, in the categories of eligible assets of New Zealand government bonds, New Zealand government inflation-indexed bonds and agency agency bonds financing of local authorities; and
- maintain OCR at 25 basis points.
- The Committee reaffirmed its long-term forecast that the OCR will remain at 0.25% until the start of 2021.
COVID-19 surges will highlight challenge of breaking out of lockout
Meanwhile, AUD / USD rebounded to 0.6536 in London, but sentiment returned to sour as investors reflected on the prospects for second waves of COVID-19. Nations open their economies and this puts their populations at risk of contagion. In recent trade, China reports new cases again and this time, a partial lock is implemented in the city of Jilin. This latest regional push highlights the challenge of breaking the deadlock – serving as a model for the rest of the world – the risk for the markets.
New Zealand MP Jacinda Ardern said earlier that the nation is about to enter a very difficult winter. She said budget 2020 will aim to accelerate employment, empower businesses and boost the economy. That is said the week that New Zealand is also looking to open up the economy. More on this here: Prime Minister of New Zealand Ardern: a country on the brink of a very difficult winter.
A more positive outlook
On a more positive note, the Westpac-Melbourne Institute consumer sentiment index rebounded 16.4% to 88.1 in May from 75.6, which was extremely low in April.
Westpac analysts say developments around the Coronavirus have been more positive. “While the number of confirmed cases worldwide has doubled since the April survey, the growth rate has slowed markedly in Europe and the United States.”
Meanwhile, Westpac analysts noted that Australia has had particularly good results with COVID-19 recently. The total number of confirmed cases increases by only 10% during the month and shows signs of complete stabilization.
The resulting pressure on our health care system is much milder than we feared two months ago.