Synopsis:

HSBC recommends going long on AUD/NZD after the Reserve Bank of New Zealand (RBNZ) delivered a 25 basis point rate cut to 5.25%, citing the central bank's dovish stance as a key factor.

Key Points:

1. RBNZ Rate Cut:

   • The RBNZ cut its rate by 25bps to 5.25%, which was not entirely unexpected given the market had priced in a 67% chance of a cut.

2. Dovish Signals:

   • The market was surprised by the RBNZ's dovish tone, with Governor Orr mentioning that a 50bp cut was considered.
   • The central bank’s updated forecasts were more dovish, with a lower Official Cash Rate (OCR) projection, downward revisions in 2024 inflation forecasts, and a worsened growth outlook.

3. Monetary Policy Divergence:

   • HSBC sees upside potential in AUD/NZD due to the divergence in monetary policy between the RBNZ and the Reserve Bank of Australia (RBA), with the RBA sounding more hawkish.

Conclusion:

HSBC recommends long AUD/NZD positions, capitalizing on the monetary policy divergence where the RBA's hawkish stance contrasts with the RBNZ's dovish approach, particularly after the recent rate cut and dovish outlook.