AUD/NZD has trended steadily lower - Westpac

AUD/NZD has trended steadily lower since October’s highs near 1.13 when investors worried about New Zealand’s new government, notes Sean Callow, Research Analyst at Westpac.

Key Quotes

“Indeed the kiwi has not only shed its apparent political risk premium, but now is considerably stronger than the short term “fair value” indicated by relative commodity prices and interest rate differentials. Our estimate of this AUD/NZD “fair value” is around 1.10.”

“Near term, it is hard to see AUD/NZD making much headway towards such levels, with momentum suggesting risks towards 1.06.”

“But multi-week/month, our base case remains for the cross to recover to around 1.10. Interest rates are firmly on hold at both the RBA and RBNZ, with decent growth prospects on both sides of the Tasman but globally-influenced inflation pressures still too muted to consider rate hikes.”

“Commodity prices meanwhile continue to point to AUD/NZD recovering – at some point.”