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MNI Insight: AUD/NZD FX - Cyclical Drivers Aren't Turning Around Yet

AUDNZD
  • The AUD/NZD cross has stabilized somewhat in the past session around the 1.0900 level, but it remains below all key simple MAs and EMAs. We are now down over 5% from late September highs.
  • Still, cyclical drivers that have correlated well with the AUD/NZD cross this year, like swap differentials and the relative terms of trade backdrop, aren't pointing to a turnaround in sentiment for the cross yet. The relative central bank pricing outlook also remains skewed in NZD's favor, underpinned by a backdrop of relative data surprises in NZD's favor.
  • China exiting its Covid-zero stance would arguably boost AU's commodity prices more than NZ's basket. This is a risk to be mindful of, although official rhetoric from China hasn't suggested a near term change is imminent. The other factor that could stabilize the cross is renewed global equity market weakness. Higher levels in the cross have coincided with weaker global equities this year, particular in September/early October. This fits with sensitivity to global risk periods for the two currencies as measured by their respective current account balances.
  • See this link for the full piece.
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