Sean Callow, Research Analyst at Westpac, suggests that the New Zealand’s strong domestic data, a surge in dairy prices and the RBNZ’s clear message that there would be no rate cut in September weighed on AUD/NZD in recent weeks, despite decent fundamentals for AUD.
Key Quotes
“Speculators in futures markets built record net long NZD/USD positions.
But while reaching lows since April 2015, AUD/NZD avoided a break of 1.02 and probably has scope to rebound to 1.06, perhaps as far as 1.0750 multi-week. The dairy price rally lost momentum in the most recent auction, while the RBNZ firmly reiterated that another rate cut “will” be required.
Meanwhile, pricing for another RBA rate cut is fading and Australia’s commodity price basket continues the impressive rally that began in June.
AUD/NZD has been trading below our weekly fair value estimates for some time but the recent undervaluation was extreme. Even after the past week’s bounce, AUD/NZD remains a long way short of 1.11+ fair value. We don’t expect such a level to be reached this year, but the directional risks are clear heading into Q4.”
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