NZD/AUD: Beginning of a decent reversal lower - Westpac

The NZD/AUD cross’s five-month high at 0.9652 two weeks ago could mark the beginning of a decent reversal lower as much of the turnaround has been due to a rebound in iron ore prices - up 22% from the low in June, according to Imre Speizer, Research Analyst at Westpac.

Key Quotes

“Further upside here will depress NZD/AUD.”

“The data calendar finally picks up with May ABS data on building approvals (Mon), retail sales (Tue) and trade (Thu). The RBA will surely be on hold on Tue but the statement is always scrutinized.”

“3 months ahead: Fair value for the cross has risen to around 0.92, following this year’s sharp decline in iron ore prices. We see that as a fair target for the remainder of 2017.

Potential supports for the AUD include the Chinese authorities’ eagerness to counter the negative headlines over Moody’s sovereign downgrade. In addition, the strength of steel reinforcing bar (rebar) prices suggests iron ore should eventually play catch-up.”