AUDNZD: 1.08 level could remain in short term - Westpac

Sean Callow, Research Analyst at Westpac, notes that the AUD/NZD has recovered from its largely unjustified Aug-Sep decline, avoiding a break of 1.02 and at least trimming the extreme gap between spot and our fair value estimates.

Key Quotes

“The surge in Australia’s key commodity prices argues for AUD/NZD to be considerably higher (1.13), though this may be tempered by doubts about the sustainability of the rally.

But yield differentials have long pointed to a stronger AUD/NZD and this has been reinforced by recent interest rate market movement. An RBNZ rate cut is highly likely to be delivered on 10 November, whereas Australia’s above-consensus Q3 CPI reinforces pricing for a steady RBA cash rate into 2017.

Still, with New Zealand’s latest GDP reading a rapid 3.6% y/y, the housing market strong and population growth robust, it is hard to be too bearish on the kiwi.

So while our base case is for AUD/NZD to head towards 1.0850- 1.09 multi-week, the 1.08 level has been difficult in recent months and could remain so short term.”