NAB: Relative Growth Dynamics Supportive

NAB note that “growth relativities are important for currencies and when it comes to the AUD/NZD, we think the cross is likely to be well supported over 2023 amid an Australian growth outlook that is likely to show resilience vs. a New Zealand economy that is arguably heading towards (or already in) a recession.”

• “Relative inflation is another important factor. Cost pressures in New Zealand have forced the RBNZ to aggressively lift the OCR, but inflation has continued to surprise on the upside. The RBA has been less aggressive suggesting a bias for a relatively lower terminal rate.”
• “This week on Wednesday Australia and New Zealand will get Q4 CPI figures. The breakdowns of the headline readings are going to be important for RBNZ and RBA rate hike expectations. In both instances the market is looking for a much better CPI print vs. respective central bank projections. The cross is likely to face some volatility from relative rates expectations, however, we see relative growth outcomes favouring the cross.”
• “Our updated projections see the AUD/NZD cross trading around NZ$1.09/1.10 in H123 and as per our advice during Q422, we don’t expect periods sub-NZ$1.08 to prove long lasting.”