AUD/NZD: Short term fair value around 1.11 - Westpac

Sean Callow, Research Analyst at Westpac, explains that after stability around 1.09-1.10 from late August through early October, AUD/NZD has lurched downwards, printing lows since June.

Key Quotes

“The underlying trend in yield differentials remains one of AUD recapturing lost ground, supporting a rising AUD/NZD. Moreover, relative commodity prices are trending firmly in the Aussie’s favour, with coal and iron ore prices leading the way at the same time as dairy prices continue to weaken.”

“These trends leave our estimates of AUD/NZD short term fair value around 1.11. So harder-to quantify factors appear to be weighing on the cross. AUD/NZD has not closed above 1.10 since the ousting of Malcolm Turnbull as Australia’s prime minister, which increased the focus on the next federal election.”

“AUD also tends to underperform NZD when the US-China trade deteriorates, which it has in recent weeks – even though commodity prices are no longer showing the effects.”

“All up, the short term risks seem to be for a test of the 1.0650-1.0700 area, before a recovery to 1.0850-1.0900 multi-week.”