• AUD/NZD has climbed to near 1.0985 as the RBA has pushed interest rates by 25 bps as expected.
• A 25 bps interest rate hike RBA has pushed the OCR to 3.35%.
• The RBA is expecting inflation to soften this year without seeing signs of an Australian recession.

The AUD/NZD pair has displayed a stellar upside move above 1.0980 as the Reserve Bank of Australia (RBA) has announced a hike in the Official Cash Rate (OCR) by 25 basis points (bps). The extent of the hike in the OCR has remained in line with expectations, which has pushed the OCR to 3.35%. This is the fourth consecutive 25 bps interest rate hike by the RBA and the ninth consecutive interest rate hike after the pandemic period.

The street was already expecting a hawkish monetary policy from RBA Governor Philip Lowe as Australian inflation has not shown signs of a slowdown yet. Australian Consumer Price Index (CPI) has already reached 7.8% amid a tight labor market and is not responding as expected by higher interest rates.

In the February monetary policy statement presented by RBA Governor Philip Lowe, the central bank sees inflation softening this year due to both global factors and slower growth in domestic demand. The RBA has forecasted an increase in the Unemployment Rate to 3.75% by the end of this year and 4.5% by mid-2025. While the Gross Domestic Product (GDP) growth is expected to slow to around 1.5% in 2023 and 2024. It is worth noting that the central bank doesn’t see signs of recession in the Australian economy despite an extremely restrictive monetary policy.

On the New Zealand front, higher interest rates by the Reserve Bank of New Zealand (RBNZ) to contain soaring inflation have started impacting the employment data. New Zealand employment data remained downbeat last month and signs of a slowdown in its inflation rate indicate that RBNZ Governor Adrian Orr could sound less hawkish in its upcoming monetary policy this month.