AUD/NZD: Relative Commodity Prices Remain Broadly Supportive - Westpac
Sean Callow, Research Analyst at TDS, suggests that the changing
relative interest rate outlook has knocked AUD/NZD from above 1.12 in
April to lows last seen in February.
“The RBNZ’s steady hand on 28 April started the rout, with further falls in AUD/NZD on Australia’s superlow Q1 CPI, RBA rate cut and the SoMP last week.
Yield spreads are likely to weigh on the cross into the 9 June RBNZ meeting, with risks AUD/NZD tests the 1.0650/1.0700 support band. But delivery of the RBNZ cut we expect (and a steady RBA on 7 June) should push the pair back above 1.09.
Relative commodity prices meanwhile remain broadly supportive of AUD/NZD, underpinning fair value estimates consistently well above spot, recently nearer 1.17. Hence multi-month we still see the pair tilted higher, say 1.12 in Q3.
Our short term fair value estimate of AUD/NZD pulled back from 1.19 to 1.17 last week after the RBA rate cut and a pullback in iron ore prices.”