Delta hinders plans for RBA to taper and highlights fragility of RBNZ tightening cycle

"The Board would be prepared to act in response to further bad news on the health front should that lead to a more significant setback for the economic recovery."

Lockdowns in NSW are expected to extend until the end of October when an 80% vaccination rate is reached. In response, Westpac's Chief Economist Bill Evans has cut his national GDP forecast in the September quarter from -2.2% to -2.6%; and lowered the forecast 2021 growth rate to 2.4% from 3.2%.

Presuming Westpac's forecast is accurate, this would seem to satisfy the criteria of a "significant setback" and cause the RBA to announce a delay to its taper plan at its September meeting in three weeks, for at least three months.

This brings us to the next big economic event, the highly anticipated RBNZ interest meeting tomorrow at midday. The RBNZ is expected to become the first major central banks to raise interest rates since the COVID-19 pandemic commenced.

After a run of hot data noted in an article last week here, the NZ interest rate market last week was fully priced for a 25 bp hike, with a 30% chance of a 50 bp hike. However, this afternoon, a dramatic repricing has occurred following news of a New Community case of Covid in Auckland.

A slow vaccination roll-out has left New Zealand extremely vulnerable should Covid breach its defenses. In recognition of this, the interest rate market has eased back to an 80% chance of a 25bp hike at tomorrow's meeting.

After testing the December 1st 1.0418 low earlier this morning, the AUDNZD cross rate has spring boarded higher this afternoon above 1.0500, driven by the apparent fragility of commencing an interest rate tightening cycle in the current climate.

While the origins of the mystery case and any spread are investigated, further gains towards 1.0600 appear likely in the short term.

Source Tradingview. The figures stated areas of August 17th 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Products and services available depend on your location and the entity holding your account. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

Contracts for Difference (CFDs) are not available to US residents.

FOREX.com is a trading name of GAIN Capital - FOREX.com Canada Limited, 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA is a member of the Canadian Investment Regulatory Organization and Member of the Canadian Investor Protection Fund. GAIN Capital – FOREX.com Canada Limited is a wholly-owned subsidiary of StoneX Group Inc.

Complaints are taken very seriously at FOREX.com. You can view our complaints procedure here.

Know your advisor