Familiar Matters Support CBA's Upside AUD/NZD View

CBA now expect "considerable AUD/NZD upside over the coming quarters. We expect AUD/NZD to appreciate towards NZ$1.12 by the end of 2020 and NZ$1.18 by the end of 2021. We expect AUD to outperform NZD because of the divergent monetary policy outlooks between Australia and New Zealand. The RBNZ's large $NZ100bn asset purchase cap suggests the RBNZ's balance sheet expansion will outpace the RBA's. Further, we expect the RBNZ to cut the cash rate to ‑0.5% in April 2021. In contrast, we expect the RBA to leave the cash rate unchanged at 0.25%. At the same time, strong bulk commodity prices and Australia's current account surplus can also support AUD/NZD. In our view, the risks are skewed to a higher AUD/NZD. If the RBNZ implements a negative cash rate, it will be the first country with a current account deficit to do so. The risk is that NZD weakens materially in 2021, pushing AUD/NZD higher than forecast."