Both the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ) are set to adjust interest rates this week. The RBNZ is expected to cut its rate by 50 basis points, pushing New Zealand’s rate below Australia’s again. This shift is increasing implied volatility for the AUD/NZD currency pair.
U.S. Tariff Delays Boost AUD
The Australian dollar has strengthened against the U.S. dollar and Japanese yen, helped by the delay in U.S. tariffs. If the RBA takes a less dovish stance than expected, AUD/USD could get further support. Meanwhile, traders are seeing increased volatility in AUD/NZD ahead of the rate decisions.
Rate Expectations and Market Impact
Markets widely expect the RBA to cut its cash rate by 25 basis points to 4.1%, citing weak inflation and GDP data from Q4. Since traders have priced in this move for weeks, the key focus will be on the bank’s forward guidance. Any sign of further rate cuts could weigh on AUD/USD and related assets.
If the RBA unexpectedly holds rates steady, AUD/USD could jump, along with Australian equities. But given current economic conditions, a rate cut is still the most likely outcome.
What to Watch in the RBA’s Policy Statement
The RBA’s policy statement will offer insight into its stance on inflation and future cuts. If the bank stresses that inflation is still high, it may indicate a cautious approach to further easing. The updated economic forecasts in the quarterly Statement on Monetary Policy (SOMP) will also shed light on the outlook for inflation and interest rates. Governor Michele Bullock’s press conference will be key in understanding the bank’s next moves.
A Cautious Approach to Rate Cuts
A 25bp cut is the most probable outcome, along with slight downward revisions in inflation and GDP forecasts. However, the RBA is unlikely to commit to more cuts immediately, preferring a meeting-by-meeting approach. Given a strong labor market and uncertainties around tariffs and upcoming elections, another cut in April or May seems unlikely. If further easing happens, June is a more probable timeframe.
RBNZ Likely to Cut More Aggressively
In contrast, the RBNZ is expected to cut rates by 50 basis points, bringing its benchmark to 3.75%—the lowest since late 2022. This would be the third consecutive 50bp cut and the fourth in the current cycle. With New Zealand’s rate set to drop below Australia’s by 35 basis points, AUD/NZD has been moving higher in anticipation.
If the RBNZ takes a highly dovish stance while the RBA remains cautious, AUD/NZD could gain more ground. Market data shows rising implied volatility for AUD/NZD, while AUD/USD volatility remains subdued. This suggests traders are watching the combined impact of both central bank decisions rather than focusing only on the RBA.
Futures Traders Reduce Short Positions on AUD
The latest Commitment of Traders (COT) report shows that traders are cutting back on short positions against the Australian dollar. Delayed tariffs and improving sentiment in commodity-linked currencies have led asset managers and speculators to reduce their net short exposure. With the U.S. dollar showing signs of a pullback, commodity currencies like the AUD may have room to climb.
AUD/USD Technical Outlook
The Australian dollar has reached a key resistance level near its August low, after rallying 4.6% from February’s bottom. The decline in short positions and increase in long positions suggest more upside potential. However, volatility is expected ahead of the RBA decision.
If the RBA delivers a rate cut without overly dovish guidance, any pullback in AUD/USD could be limited. The 0.6320 level, marked by the weekly pivot and high-volume node, could act as key support for buyers.
AUD/NZD Faces Resistance
AUD/NZD has climbed to a year-to-date high of 1.1140, driven by monetary policy expectations. However, the pair hit resistance just below its July peak. If the RBNZ cuts rates less than expected or signals a slower easing cycle, AUD/NZD could retreat.
With the RBA meeting on Tuesday, AUD/NZD could keep rising in the short term. But since it has struggled to break above the July high, traders may look to sell rallies, expecting a pullback. The weekly chart shows choppy price action at these levels, with previous rejections in July and August. Last week’s Doji candlestick suggests a possible shift in momentum, favoring NZD strength over AUD in the near future.
Final Thoughts
With major rate decisions coming from both the RBA and RBNZ this week, AUD/USD and AUD/NZD will likely see increased volatility. The RBA’s tone on future cuts and the RBNZ’s stance on further easing will be key drivers for both currency pairs. Traders should watch policy statements and economic forecasts closely to gauge the long-term direction of the Australian and New Zealand dollars.
