AUD/NZD: Upside potential with possible retest of 1.10 on the cards – Westpac

Sean Callow, Research Analyst at Westpac explains that after sliding steeply in Q2, Australia’s commodity price basket has outperformed New Zealand’s since June, supporting recovery in the spot rate, but our fair value estimate continues to point to upside potential on AUD/NZD.

Key Quotes

“A retest of March’s 1.10 highs seems justified multi-week.”

“The relative monetary policy outlook has been less influential for AUD/NZD lately, with benchmark rates firmly on hold at both the RBA and RBNZ. But at the margin, it has also favoured AUD, with the RBA maintaining an upbeat medium term growth outlook and endorsing the market’s lean towards an eventual rate hike, while the RBNZ has been keen to douse premature tightening talk and has also taken a stronger swipe at the kiwi.”

“Both currencies are high beta plays on broad US dollar swings and as such, will be volatile in coming months if USD sentiment swings on changing Fed rate hike expectations and US political risk.”

“AUD and NZD also share the weight of an overhang of unusually large long speculative positioning.”