AUD/NZD back above fair value placed at 1.11 - Westpac

Sean Callow, Research Analyst at Westpac, explains that it took a shock election result in New Zealand, but after sitting below their fair value since late 2015, AUD/NZD is finally back above fair value which they now place at 1.11.

Key Quotes

“The pair this week reached highs dating to April 2016, when the RBA was on the verge of cutting rates.”

“Near term, momentum should remain mostly with AUD/NZD, to 1.13 and potentially 1.14 multi-month. But the RBA’s very steady interest rate outlook (reinforced by Australia’s low Q3 CPI) suggest difficulty extending to say, 1.15.”

“NZ politics remains a two-way risk for AUD/NZD near term as the Labour-NZ First policy agenda is fleshed out. But kiwi underperformance seems likely to persist at least until the new RBNZ governor is chosen and the revised Policy Targets Agreement agreed.”

“Relative commodity prices alone imply AUD/NZD is roughly fairly priced, with e.g. both iron ore and dairy prices trending lower in recent weeks.”