• AUD/NZD retreats sharply from a 13-year peak and is pressured by a combination of factors.
• Softer Australian consumer inflation figures temper RBA rate hike bets and weigh on the AUD.
• The NZD rallies in reaction to the RBNZ’s hawkish outlook and contributes to the steep decline.

The AUD/NZD cross attracts heavy sellers during the Asian session on Wednesday following softer consumer inflation figures from Australia, snapping a three-day winning streak to its highest level since April 2013 touched the previous day. The intraday downfall picks up pace after the Reserve Bank of New Zealand (RBNZ) announced its policy decision and drags spot prices below the 1.2200 mark, or a fresh daily low in the last hour.

The Australian Bureau of Statistics (ABS) reported that the headline Consumer Price Index (CPI) slowed from the 4.6% YoY rate in March to 4.2% in April. This comes on top of an unexpected rise in the Australian Unemployment Rate to 4.5% in April and a fall in the number of employed people, tempering market bets for further interest rate hikes by the Reserve Bank of Australia (RBA). This, in turn, undermines the Australian Dollar (AUD) and triggers the initial leg of the AUD/NZD pair's decline.

Meanwhile, the RBNZ, as expected, decided to hold the Official Cash Rate (OCR) at 2.25% for the third meeting in May. In the accompanying policy statement, the central bank stated that the OCR will most likely need to increase sooner and by more than envisaged in the February monetary policy statement. This reaffirms market bets for a 25-basis-point (bps) rate hike at the July 8 meeting and boosts the New Zealand Dollar (NZD), exerting additional pressure on the AUD/NZD cross.

Moving ahead, the market focus now shifts to the post-meeting press conference, where comments by RBNZ Governor Anna Breman will drive the New Zealand Dollar (NZD) and provide a fresh impetus to the AUD/NZD cross. Nevertheless, the divergent RBA-RBNZ policy expectations favor bearish traders and back the case for an extension of the intraday corrective pullback from a 13-year peak. However, a move back above the 1.2250 area might negate the negative outlook.