RBNZ In Focus Tomorrow, Net Longs Elevated, AUD/NZD Has Tended To Rise Post Recent Decisions

Near term focus for NZD/USD rests on tomorrow's RBNZ meeting. No change is expected, whilst this also isn't a meeting where the RBNZ updates its forecast profile, nor does Governor Orr provide a press conference update. This may leave the central bank comfortable maintaining the status quo and not shifting guidance. It will also likely want to wait for Q2 CPI (July 17) and employment/wages (August 7) before changing its tone as inflation remains its focus.

• Any fresh dovish surprises have scope to weigh on NZD/USD at least from a positioning standpoint. The first chart below plots net commercial positions from the CFTC. We are at fresh highs going back to 2017 per this metric.
• There are some obvious caveats, as positioning is also influenced by broader USD trends, Fed outlook and risk appetite (proxied by global equity markets), to name a few. These have generally moved in favor of building NZD longs in recent weeks.

Fig 1: NZD/USD Net Commercial Positions - CFTC

Source: MNI - Market News/Bloomberg/CFTC

• In terms of NZD/USD performance around RBNZ meetings in the past 12 months, i.e. since the central bank went on hold, there isn't a strong trend in the weeks after the outcome. The chart below plots average NZD/USD performance in the 2 weeks prior and after these meetings, going back to June last year.
• NZD/USD is around flat, on average, two weeks after the meetings, although does tend to rally in the period before the meeting outcomes (0.60%).
• Interestingly, AUD/NZD average performance, the other line on the chart, tends to do better in the two weeks after the meeting outcome, albeit in the second week. A buy the dip strategy in AUD/NZD has worked well post RBNZ meetings in the past 12 months. Indeed AUD/NZD has only been lower in 1 meeting out 7 over this period (2 weeks after the event).
• Still, this may also reflect generally lower levels in AUD/NZD during this period, which arguably holds less in the current backdrop (spot around 1.1000).
• AUD/NZD is currently trading at 1.100 and slightly below the yearly highs of 1.1031, a dovish RBNZ would likely push the cross to new ytd highs, while support lays at 1.0930 (June 30 lows).
• NZD/USD is currently trading at 0.6120 just above initial support at 0.6116 (20-day EMA) with a break would open up a move to 0.6085 area (100/200-day EMA), resistance is 0.6150 (July 5 high), with a break here opening a move to 0.6222 (June highs).

Fig 2: Average NZD/USD & AUD/NZD Performance Before & After RBNZ Meetings (Since June Last Year)

Source: MNI - Market News/Bloomberg/CFTC