AUD/NZD rises to near 1.1000 after RBNZ unexpected rate cut

• AUD/NZD lost ground following Wednesday’s unexpected 25 basis point RBNZ rate cut.
• The RBNZ monetary policy statement indicates that inflation is falling and returning to the 1-3% target range.
• Aussie dollar advances on declining likelihood of an RBA rate cut soon.

AUD/NZD snaps its three-day losing streak, trading around 1.0990 during the Asian session on Wednesday. This upward move is attributed to the Reserve Bank of New Zealand’s (RBNZ) unexpected decision to cut its official cash rate (OCR) by 25 basis points to 5.25% at its August meeting. Traders are eagerly awaiting further information from RBNZ Governor Adrian Orr’s press conference and speech scheduled for later in the day.

According to the RBNZ’s Monetary Policy Statement (MPS) summary, inflation is easing and returning to the 1-3% target range. Inflation in the service sector is expected to decline further. The committee’s decision on further easing will depend on their confidence that pricing behavior remains aligned with an environment of low inflation. The Consumer Price Index (CPI) is expected to remain around the target midpoint for the foreseeable future.

Turning to Australia, recent data shows that Australian wage growth remained strong in the second quarter, prompting the Reserve Bank of Australia (RBA) to take a dovish stance on its policy outlook. This supported the Australian dollar (AUD) and supported the AUD/NZD cross.

Last week, RBA governor Michele Bullock ruled out a rate cut for the next six months. Bullock stressed that Australia’s central bank remains vigilant about inflation risks and stands ready to raise rates again if necessary.