• AUD/NZD pops in the Tokyo open to test 1.0700.
• The RBA and RBNZ are in focus with RBA minutes and RBNZ MPS coming up.

AUD/NZD is higher in Tokyo, correcting up from the lows of 1.0673 and reaching into the 1.07s again. Given the robustness of much of last week’s data flow, markets are pricing in a move from the Reserve Bank of Australia.

´´For the RBA we suspect the major consideration in assessing the balance of the domestic fundamentals (which in our view support the case for further tightening) versus developments offshore, will be the potential for spill-over into the real economy,´´ analysts at ANZ Bank said. 

Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent spoke today and said the full impact of increases in interest rates was taking longer to filter through to the economy due to a higher share of fixed-rate mortgages and the savings amassed by households during the pandemic.

Meanwhile, a reflection of the robustness in the domestic data was the February labour force survey, which showed a strong gain in employment and a fall in the unemployment rate back to 3.5%. 

´´An increase in the unemployment rate would likely help return inflation to the RBA’s target band. As our chart of the week suggests (acknowledging inflation dynamics are more complex and such curves are not stable over time), an unemployment rate in the low to mid 4’s would be more consistent with the inflation target than one in the mid 3’s,´´ the analysts at ANZ Bank argued. ´´Such an Unemployment Rate would still be lower than that which prevailed pre-pandemic.´´

 Minutes of the RBA´s March Monetary Policy Meeting will be released this week. 

Meanwhile, financial market risks are currently in focus, with the fallout from Silicon Valley Bank’s failure in the US causing immense volatility in global wholesale interest rates in recent days. ´´All else equal, now that rates are (almost certainly) in restricted territory, this reminder of global fragility tilts the scales towards 25bp from the RBNZ in April (already our forecast, but we previously saw the hurdle to 50bp as extremely low),´´ the analysts at ANZ said noting the RBNZ MPS coming up on March 24.