AUD/NZD should consolidate gains around 1.08 – Westpac

Sean Callow, Research Analyst at Westpac, points out that RBNZ governor Adrian Orr’s first policy statement on 10 May provided the spark for AUD/NZD to break its ranges to the top side.

Key Quotes

“By declaring that the “direction of our next move is equally balanced, up or down”, the RBNZ provided a clear contrast to the RBA messaging. This should persist at least for the next few months, helping AUD/NZD maintain notably higher ranges.”

“The RBA’s message has not changed; indeed in its own quarterly statement in May, the RBA stuck to its bullish 3.25%yr Australian GDP forecast for both 2018 and 2019. It has also made clearer its view that its baseline view is that “higher interest rates are…likely to be appropriate at some point.”

“This has been the main driver of AUD/NZD’s recovery from estimate undervaluation to be about in line with fair value. But there has also been modest support from relative commodity prices and a slight easing in US-China trade tensions.”

“If this remains the case then near term AUD/NZD should consolidate gains around 1.08 but then push towards 1.10 multi-week.”