AUD/NZD: Bull's hooves in the ground heading into the RBNZ

• AUD/NZD is firm into the long-awaited RBNZ today. 
• The cross has rallied nearly 2% since the 27th Jan' lows, in what could the making of a cup and handle recovery. 

AUD/NZD has been in the hands of the bulls since the cross bottomed out in the low 1.03s following a downtrend from the 7th November highs. The market's focus has been with more hawkish rhetoric from the Reserve Bank of New Zealand over that of Australia's central bank and the bias tards New Zealand yields have given the bird the edge.

"Markets are pricing a 5% chance of easing at the next RBA meeting on 3 March, and a terminal rate of 0.44% (RBA cash rate currently at 0.75%). Market pricing for RBNZ implies a 5% chance of easing on 12 February, with a terminal rate of 0.82% (RBNZ OCR currently at 1.0%)," analysts at Westpac explained. 

RBNZ expectations

In its first policy meeting since 13 November, the RBNZ announces its policy decision at 12pm Sydney/9am Sing/Hong Kong where markets are preparing for no change decision in the OCR. However, the skittish behaviour of the NZD reflects nervousness that the RBNZ might cut on the back of the hit to global growth stemming from the coronavirus.

"The obvious strategy now is for the bank to signal that the OCR is most likely to remain on hold at 1%, but that they stand ready to cut the OCR should that be required by the coronavirus situation. If coronavirus quickly blows over like SARS did, then the RBNZ can revert to an on-hold outlook for the OCR at its next communique," analysts at Westpac argued.

Should economic disruptions from coronavirus intensify, the RBNZ may consider cutting the OCR to help offset any negative impact on employment. Markets are 60% priced for a rate cut by June,

analysts at ANZ Bank argued, who recently downgraded their outlook for Gross Domestic Growth in 2020 for New Zealand, lowering projections to 0.8% for the first half of 2020 from 1.3%. While otherwise, there had been some promising signs of improvement in domestic economic momentum, so this meeting is drawing a great deal of anticipation in markets today. For a full preview of the RBNZ, see here: RBNZ Preview: Coronavirus should limit upside potential for NZD/USD

AUD/NZD levels