AUD/NZD rises to 1.1050, highest since Aug 16 after RBNZ 50bps rate cut

• AUD/NZD saw a dramatic reversal from a one-week low hit on Wednesday.
• The RBNZ announced a 50bps rate cut, which weighs heavily on the NZD and boosts the cross.
• Disappointment on China’s stimulus upgrade is undermining the AUD and could limit further gains.

The AUD/NZD cross bounced back from a one-week low hit during the Asian session on Wednesday, with buying interest picking up pace after the Reserve Bank of New Zealand (RBNZ) announced its policy decision. Spot prices have rallied to the 1.1050 area in the past hour, closer to the August 16 high reached earlier this week, and look poised to appreciate further.

As expected, the RBNZ cut the Official Cash Rate (OCR) by 50 basis points (bps) to 4.75% at the end of the October meeting. In the accompanying policy statement, the central bank noted that excess capacity has dampened inflationary expectations, and changes in prices and wages are now more consistent with a low-inflation environment. This raises the possibility of more interest rate cuts in the coming months, which in turn weighs heavily on the New Zealand Dollar (NZD) and provides good upside for the AUD/NZD cross.

The Australian dollar (AUD), on the other hand, is struggling to attract buyers and is near a multi-month low against the US dollar (USD) amid disappointment over Tuesday’s China update. This could prevent traders from placing aggressive bullish bets around the AUD/NZD cross and limit any further gains. That said, some further buying beyond the 1.1060 area could trigger another retracement of a short-covering move and set the stage for an extension of the rally seen over the past two weeks or so.