NAB Mark Targets Higher Despite Recent Fall

NAB write “a weaker AUD/NZD cross over the past month or so has gone against our view but understandable in light of rate differentials widening. From this lower base, our new projections see a meaningful reversal and we have actually revised up our AUD/NZD targets despite heading in the opposite direction.”

• “In terms of the outlook for the cross:”
• “Australia-NZ rate differentials can narrow from current levels. While both the RBNZ and RBA still have a bias to tighten further, given the current large difference in policy rates, there is more chance of easier policy in NZ than Australia.”
• “NZ’s relatively tighter monetary policy stance suggests more domestic growth headwinds compared to Australia, ultimately a positive force for the cross.”
• “Over the past few years, NZ and Australia’s current account balances have gone in opposite directions. NZ’s large deficit - over 9% of GDP on recent annualised quarters - stands in stark contrast to Australia’s surplus. A stronger cross rate would help close the gap.”
• “While our prior projections had a central view of NZ$1.10-1.11 over the foreseeable future, we have nudged the figures up to NZ$1.11-1.13. This is consistent with a view that the cross could re-visit the September high just under NZ$1.15, which was the top of a well-established 9-year trading range.”