AUD/NZD Eyeing 1.1200 Test

The initial reaction post the Q2 NZ retail sales miss was fairly muted, but the AUD/NZD cross is seeing some upside now. Part of this though is reflective of weaker USD sentiment elsewhere, which is boosting AUD, while NZD lags to some extent. The cross was last just above 1.1180, fresh multi-week highs. The next resistance point is just under 1.1200, highs back in late July.

• The big NZ Q2 retail sales miss (-2.5% versus +1.7%), coupled with downside revisions to the Q1 print, underscore some of divergences between Australia and NZ economic trends at the moment. In quarterly terms the differential in retail sales volumes is now at +3.7ppts in AU's favor, which is around post Covid pandemic highs.
• Of course, Australia may see some catch up to the downside. Next Monday, retail sales for July (in nominal terms) print. As we highlighted earlier in the week, Australia's weaker PMI readings is suggesting some of the shine is coming off the domestic growth backdrop in Australia.
• The AUD/NZD cross continues to outperform yield differential momentum, although post the NZ data miss, we have seen momentum shift back in AUD's favor across the swap and government bond space.