AUDNZD still appears elevated - HSBC

In view of the analysts at HSBC, AUD-NZD still appears elevated relative to 1Y1Y forward rate differentials as they suspect this may be because of the RBNZ’s more vocal opposition to currency strength.

Key Quotes

“In some contrast to Australia, the data flow has been more positive out of New Zealand. Q1 CPI printed above consensus (2.2% vs 2.0% expected), while the unemployment rate dipped to 4.9% (from 5.2% in Q4) albeit with soft wages growth. Unusually, the RBNZ goes into its 11 May 2017 meeting with the trade-weighted NZD 5% weaker than its February projections and headline CPI inflation 0.7ppt above its forecast.”

“The NZD may be sensitive to even a subtle shift in policy, which could push AUD-NZD to test a key support level at 1.064, even if low underlying inflation means the RBNZ is unlikely to significantly alter its rhetoric on the NZD or medium-term inflation and rate projections. As a secondary consideration, the divergence of the two economies’ key export commodity prices could also put downward pressure on the pair. Iron ore prices have fallen more than 25% from March 2017 peaks, erasing nearly all gains since Q4, whereas whole milk powder prices are 30% above the March 2017 trough in USD terms.”