As we all await the RBA to do its magic today, hiking interest rates to make over-indebted mortgagees pay even more to uber-profitable banks, reduce discretionary spending and increase unemployment, yet not address any imported inflation concerns, the Australian dollar is still going to go down against USD. Why? Because the US Federal Reserve has a bigger bee under its bonnet about inflationary pressures, with interest rate futures almost locking in a 75bps rate rise this month, with up to 150bps forthcoming. The RBA would love to follow through in similar fashion, but is hamstrung by the biggest private debt load on the planet.
The only upside here is that New Zealand’s red hot property market is tanking faster than Australia’s, and while the RBNZ recently raised rates on each of its last four meetings, currently at 3%, the market knows it has almost reached its “peak”, thus sending the Kiwi down against the Aussie.
The monthly chart of AUDNZD bears this out clearly, having broken out of a declining trendline that has actually been basing since 2014:
The one fly in the ointment here to keep long against Kiwi are the 2017 highs just below the 1.13 handle which have yet to be cleared, but that area must come under stress today when the RBA hikes at least 50 basis points.
The Kiwi has been in near terminal decline against USD since early 2021, having lost nearly 1200 pips in the process, almost in lockstep with its beleaguered property market: