Sean Callow, Research Analyst at Westpac, notes that spot AUD/NZD has gyrated either side of Westpac’s short term fair value estimate for the past year or so, recently bouncing to somewhat above fair value.
“The spot rally to above 1.12 in Oct 2017 produced the largest overvaluation since mid-2015. This looked to be driven by jitters over NZ politics, concerns which seem to have faded in FX markets at least.”
“The new government’s limited changes to the RBNZ Policy Targets Agreement and choice of well-respected Adrian Orr as RBNZ governor probably helped ease any foreign investor worries. But the bank’s dovish message has of course taken its toll on the kiwi.”
“The current AUD/NZD overvaluation indicated by this short term model at time of writing is about 1.5c, not very stretched by historical standards.”
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