We and the market expect RBA to cut the cash rate by 25bps at the 18 February meeting. However, there is a risk that RBA delivers a hawkish surprise amid a tight labour market and elevated CPI. RBNZ is likely to cut rates by 50bps at the 19 February meeting, with surprises unlikely. We see upside risks to AUD/NZD and AUD/USD, especially if the RBA surprises with a hawkish hold, Standard Chartered's economists report.
Positioning for fat tails
"We and the market expect the Reserve Bank of Australia (RBA) to cut the cash rate by 25bps to 4.10% at the 18 February meeting. However, we acknowledge the risk of a hawkish surprise by the RBA, either by keeping the cash rate unchanged at 4.35% or via cautious guidance from Governor Bullock at the press conference. Despite weak private-sector job creation, the RBA may cite a still-tight labour market and elevated underlying price pressures to signal a shallower rate-cutting cycle in 2025."
"On the Reserve Bank of New Zealand (RBNZ), our baseline is for the central bank to reduce its cash rate by 50bps at the 19 February meeting. The move has been well-communicated by the central bank previously, and we see a low probability of a surprise in either direction. Where risks are concerned, we think the RBNZ may ease more aggressively in Q2 (relative to our baseline of a single 25bps cut) if economic data remains lacklustre, to get rates back to neutral (2.5-3.5%) more quickly."
"On FX implications, we see upside risk to AUD/NZD at current levels, particularly if the RBA surprises the market with a hawkish hold at the February meeting. Put differently, we see scope for end-2025 RBA-RBNZ rate differentials to widen beyond 50bps at present, which should keep AUD/NZD well-supported above the 1.11-level. On AUD/USD, a hawkish cut by the RBA may nudge the pair above the 0.64 level, especially if cuts in Q2 or beyond get priced out."
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