RBNZ’s on the side of AUD/NZD bulls - SocGen

Kit Juckes, Research Analyst at Societe Generale, points out that AUD/NZD has been trading in a 1.0-1.14 range for the last three years but the 10year yield differential between Australian and New Zealand government bonds has narrowed to under 20bp for the first time since H1 2013.

Key Quotes

“The last the spread was here, AUD/NZD was above 1.20. The RBNZ drove the Kiwi down today by leaving rates on hold at 1.75%, and changed the working in their policy statement to say that ‘A lower New Zealand dollar is needed to increase tradables inflation and help deliver more balanced growth’.”

“In May, the statement welcomed the fall in the NZD TWI, saying it was “encouraging and, if sustained, will help to rebalance the growth outlook towards the tradables sector”. Small detail? Perhaps, but I’m more convinced that the Australian/US yield differential is turning higher than I am about New Zealand/US. The commodity cycle has turned higher, the global economy is in reasonably good shape if we look beyond the current geopolitical nervousness, and AUD/USD, while it’s down from the recent highs, is likely to head slowly higher over time. AUD/NZD too.”