The main takeaway from Governor Lowe is that he is insistent that the RBA do not want to raise interest rates sooner than 2024. Lowe was explicit in this by saying that the RBA do not share the markets expectations of rate increases in 2022 and 2023. The RBA added that the board will consider the case for extending bond purchases later in the year. The RBA also had a repo tweak last week that some may have missed. In a nutshell they have announced that the borrowing of the 04/2023 and 04/2024 bonds will be done by their own facility. The significance of that is that their facility has a fee of 100bps vs the usual 25bps fee. The prospect of shorting these 3 year yields bonds, to move rates above 0.10%, now looks very unlikely.
Lowe just doesn’t want to move before the Fed
Despite the threat of further bond purchases potentially coming Governor Lowe said that the RBA are already doing a large amount of QE and it is ‘sensible to see how the economy develops’ before deciding on further QE. The way to read the RBA is still that they don’t want to move before the Fed. See here for an earlier piece I have written on that. Governor Lowe’s speech just puts more focus on the Fed’s meeting this week. If the Fed start talking about earlier rate rises then the RBA will likely start to follow suit. They just don’t want to be the first to declare a coming rate rise.
RBA vs RBNZ
There is now some space opening up between the RBA and the RBNZ. Although Governor Orr is trying to signal a similar stimulatory policy investors have been giving a 29% chance of the RBNZ hiking rates this year. This percentage can grow as:
- NZ has already purchased enough vaccines for the whole country and;
- Q4 GDP data out this week may signal the economy is on a sure footing.
These points should open up a AUDNZD sell bias that could widen, but keep an eye on the bond yield spread.