Right now the Reserve Bank of Australia (RBA) and Reserve Bank of New Zealand (RBNZ) are heading in opposite directions.
This is why we have seen AUD/NZD prices rise 7% since the beginning of May this year.
But does the move still have legs?
RBA perspective
The RBA has held rates at 3.60% but isn’t signaling urgency to cut.
The message is consistent:
“We’re not tightening, but we’re not easing either and inflation is still a risk.”
That’s what we’d call a moderately hawkish stance, not aggressively fighting inflation, but firmly resisting rate cuts.
They’re especially concerned about:
Rising service inflation
Construction costs
Housing pressures
That kind of rhetoric could support the AUD, because it tells markets that Australian yields could stay higher for longer.
RBNZ stance
On the other side of the fence (or sea), the RBNZ has gone full dovish:
They’ve already cut rates.
They’ve lowered rate projections (meaning they see the cycle peaking sooner).
They’ve openly discussed more easing if data softens further.
That’s a central bank clearly worried about slowing growth and weaker inflation, and it sets the stage for more downside in the NZD.
What it means to me
From a fundamental perspective, this is a textbook monetary policy divergence play.
A hawkish RBA + dovish RBNZ = bullish AUD/NZD bias.
When one central bank holds or hikes while another cuts, capital tends to flow toward the higher-yielding currency (in this case, AUD).
AUD/NZD is trading at a range high that has been formed since 2013.
If the policy divergence remains the same, this range high could be vulnerable to a breakout.
I will be monitoring the lower time frame here (daily) to see if we get a pullback to support first, I will look to long into the resistance, then if price breaks I could consider another opportunity.
Remember this.
When two central banks diverge, it’s one of the cleanest trades in FX. Follow the fundamental flow.