AUD/NZD: Trading ranges to tilt a little higher with broad range of 1.0350-1.0550 - Westpac

Sean Callow, Research Analyst at Westpac, expects AUD/NZD trading ranges to tilt a little higher in coming weeks and the broad range should be in between 1.0350-1.0550 levels.

Key quotes

“The strong outperformance of New Zealand’s commodity export basket over Australia’s in recent weeks has backed the fall in AUD/NZD since April. This has been most evident in the contrast between the steep slide in iron ore prices and resilient dairy prices.”

“This was the main driver of the 5-6 cent tumble in our fair value estimate of AUD/NZD, to around 1.08 this month. Still, the spot fall leaves the pair undervalued and iron ore is now showing some signs of life.”

“Commodities will remain in close focus for AUD/NZD near term, given the firmly neutral message from both the RBA and RBNZ. However, the market’s persistent desire to price in risks of RBNZ tightening ahead of the RBA leaves the kiwi somewhat exposed to dovish surprises in NZ. Q2 CPI on 18 July may be one example.”

“With spec positioning also warning of excessive kiwi bullishness, we expect AUD/NZD trading ranges to tilt a little higher in coming weeks. The broad range should be 1.0350-1.0550 but with 1.06 more likely to trade than 1.03.”