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Further Upside Potential; Business Conditions & Inflation Expectations  Diverge

AUDNZD

AUD/NZD is ~0.2% firmer in today's trading. The pair found support below $1.0950, before firming as NZ 2 Year Inflation expectations moderated. We now have the $1.10 handle in view.

  • Relative business conditions point to further upside potential in the cross. Although the spread moderated a touch today in the latest NAB Business Survey, conditions still remain more favorable in Australia.
  • The NAB business survey also pointed to less inflationary pressure, although as we noted last Friday, piece is here, measures of Australia's Core Inflation have surpassed those in NZ.
  • Last week the pair was unable to sustain a break through $1.10, bulls will look for a close above the handle to target $1.1045 (11 Nov High) and then $1.1101 the 61.8% retracement of the Sep-Dec downleg.
  • Key support is at $1.0881, the low from Jan 31.

Fig 1: Relative Business Conditions vs AUD/NZD

Source: Market News International (MNI)/Bloomberg

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