NZD/AUD: Unclear whether last week’s rally will extend further - Westpac

Imre Speizer, Research Analyst at Westpac, suggests that its unclear whether last week’s rally of NZD/AUD cross to around 0.9400 will extend further.

Key Quotes

“Much of the rise was to do with the jittery global mood, but these tensions have started to ease, with North Korea’s holidays featuring only a failed missile launch and the usual parades, and the French election first round favouring pro-EU centrist Macron.”

“This leaves AU Q1 CPI on Wed to dominate the week. As the shock weakness of Q1 16 drops out, at the very least we should see a jump in annual inflation.”

“The domestic story argues against fresh AUD shorts with the narrative around CPI likely to be mostly about the return to >2%, helping RBA OIS pricing edge back towards flat (from recent 20% pricing for a 2017 rate cut). Iron ore’s slide is also likely overdone.”

“3 months ahead: While fair value for this cross is around 0.88, we don’t expect to see that anytime soon. It would take a sharp rebound in iron ore or coal prices, and a calmer geopolitical environment, to see a resumption of the Feb/Mar decline to around 0.90.”