While growth in the two Asian-Pacific economies has picked up some steam, a sharp appreciation in the exchange rate threatens to depress growth and dampen already subdued inflationary pressures. The aussie gained just over 8% versus its US counterpart in 2017 and is up a further 2. 5% so far in 2018. The kiwi rose by a more modest 2% last year but has rallied almost 4% in January.
Both the RBA and RBNZ could toughen their language on the exchange rate in their upcoming meetings on February 6 (Tuesday) and 8 (Thursday) respectively. However, investors are likely to ignore such comments if the central banks also raise their outlooks on the economy as this would bring forward expectations about the timing of a rate increase. Based on recent data, the RBNZ is more likely to strike an upbeat tone, while the RBA could sound more cautious.