Summary:

As the RBNZ feel uncertainty on the future outlook of inflation, they decided to on hold the rate higher for longer and signaled further rate hike if inflation out of control. In contrast, the continued slowdown in Canadian inflation provides more confidence for a rate cut by the BoC in June, highlighting a clear policy divergence between the RBNZ and the BoC. 

NZD/CAD 4H

Macro View:

NZD: The RBNZ kept the OCR unchanged at 5.5% at this week’s meeting but delivered a more hawkish-than-expected message, hinting not just at delaying rate cuts but even considering raising rates again. In the context of persistent inflation, the possibility of a rate hike was discussed as a “real consideration.” The new RBNZ forecast sees the OCR peaking at 5.65%, with more than a 50% chance of a rate increase. This guidance also implies that the first rate cut is likely to be delayed, providing a boost for the NZD.

CAD: The Canadian rate market now anticipates a higher probability of an earlier rate cut from the BoC following the release of April's inflation data. The report revealed that core inflation surprised to the downside for the fourth consecutive month this year. The average of the core CPI measures (trim & median) slowed further to an annual rate of 2.8% in April from 3.1% in March. With inflation moving closer to the BoC’s target and Canada's economy growing below potential, there is now room for the BoC to make their policy rate less restrictive. As a result, markets expect the first BoC rate cut at the June policy meeting

FX View:

DXM: A Tool to Gauge Retail Sentiments

NZD/CAD Current Retail Long/Short Position

The DXM shows that 1.7% of traders are bullish, while the remaining 98.3% are bearish, reflecting the predominant retail sentiment. This sentiment offers a contrasting trading opportunity since retail traders tend to consistently lose money in the long term.

Seasonality Analysis: The Historical Movement of the Currencies  

NZD Futures’ seasonality movement

The seasonal pattern for the NZD suggests bullish momentum in the near term

CAD Futures’ seasonality movement

The seasonal pattern for the CAD suggests bearish momentum in the near term.

Sources: Prime Market Terminal

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