AUDNZD: Continue to look for an appreciation trend to resume - Westpac

Sean Callow, Research Analyst at Westpac, suggests that the rate cuts this month from both the RBA and RBNZ were not necessarily neutral for AUD/NZD, given the notably more dovish tone of the RBNZ.

Key Quotes

“Indeed, yield differentials have been arguing for stronger AUD/NZD for some months.

In terms of relative commodity price performance, Australia’s export basket has been quite strong in the past few months, with iron ore and coal holding up better than expected. We now see iron ore’s expected pullback in NovDec rather than Sep-Oct.

However NZ’s key commodity prices are playing catch-up, with whole milk powder prices up 30% over the past 4 weeks.

This still leaves AUD/NZD well below our fair value estimate of 1.11. We continue to look for an appreciation trend to resume, but it is hard to see the catalyst for a break of 1.08 which has held since May. It seems more realistic to buy dips to the low 1.05s, targeting no higher than 1.0750/75 multi-week.”