AUD/NZD: Trading below fair value - Westpac

Sandeep Kanihama FXStreet Contributor

According to Sean Callow, Research Analyst at Westpac, spot AUD/NZD has gyrated either side of their short term fair value estimate for the past year or so, recently slipping below fair value.

Key Quotes

“Fair value estimates are always a simplification of a currency pair’s fundamental drivers, so deviations from the spot rate can persist for some time.”

“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.”

“Instead, AUD may now have a degree of political risk premium, as it has underperformed G10 currencies since the leadership change in August despite higher commodity prices and strong GDP data. A federal election is due by May 2019, before which AUD could struggle to shake off any risk premium.”

“The current AUD/NZD undervaluation indicated by this short term model at time of writing is about 3 cents (1.11 versus spot 1.08), not very stretched by historical standards.”

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.

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