AUD/NZD should recover to 1.11 by year-end - Westpac
Sean Callow, Research Analyst at Westpac, points out that the AUD/NZD rallied above 1.11 in response to the RBNZ’s dovish MPS on 9 Aug as it lowered its GDP forecasts and RBNZ’s McDermott said that the chances of a rate cut have increased.
Key Quotes
“Further such commentary in recent weeks has encouraged markets to price in as much as a 40% chance of the RBNZ cutting rates by mid- 2019.”
“This is in stark contrast to the RBA’s message on its cash rate, where Australia’s strong GDP data backed the RBA view that the next cash rate move will be a hike, albeit still quite a distant prospect.”
“Overall, yield spreads continue to trend in AUD’s favour.”
“Relative commodity prices are also increasingly supportive of AUD/NZD, with coal and LNG outweighing weakness in metals.”
“Yet AUD/NZD has pulled back to the familiar 1.09 area. Some AUD/cross underperformance seems linked to Australia’s political turmoil, while AUD seems to be preferred over NZD as a proxy for US-China trade tensions.”
“As such, there remains near term risk of at least a brief slide towards 1.07 (June lows). But if the relative commodity and yield story continues in Q4, the cross should recover to 1.11 by year-end.”
Author
Sandeep Kanihama
FXStreet Contributor
Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.
