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MNI MARKET ANALYSIS: AUD/NZD FX - Cyclical Backdrop Now Less Supportive

Executive Summary:

  • A buying the dips strategy has worked well in the AUD/NZD cross through 2022. After starting the year around 1.06 we have progressed up to to just beyond 1.1250. We are off highs currently (last 1.1190), but if history is a guide, the current pullback will be supported before the pair moves to fresh cyclical highs.
  • Arguably though, the cyclical backdrop is less supportive now compared to earlier points in the year. We aren’t seeing the same degree of upside surprises in Australian data, relative to NZ, that we were earlier in the year. RBA Governor Lowe also stated last week that the case can be made for a slower pace of rate hikes.
  • From a broader macro standpoint the market may be more reluctant to take AUD/NZD to fresh highs, when the cyclical indicators have turned less supportive. At the very least, the market may want to wait for these indicators to turn back in AUD’s favor before buying the current dip.
  • See this link for the full piece: AUDNZD Cyclical Backdrop Less Supportive (Sep 12 2022).pdf

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