NAB: Relativities Still Favour AUD Over NZD

NAB note that “AUD/NZD has now spent more than a month trapped inside an effective NZ$1.0950- NZ$1.1100 range. Our central projections for the cross are for it to trade between NZ$1.10 and NZ$1.13 throughout the next 12 months or so, meaning any forays down into the NZ$1.08-1.09 area are expected to be brief; ditto any moves up to NZ$1.14-1.15. The global forces acting on AUD and NZD are similar, neither faring well during global recessions or periods of sub-par global growth such as we currently anticipate. Nor too - and whether for growth-related reasons or otherwise - during periods of weak risk appetite such as has been experienced for much of 2022 to date (periods of sharp risk-appetite falls can be associated with at least temporary AUD underperformance). In expressing a preference for AUD/NZD to spend more time above than below current levels, we’d note that the RBNZ’s policy tightening cycle looks to be well advanced relative to the RBA, and that recession, or recession-like economic conditions, already look to be upon NZ, unlike in Australia. Economic surprises (actual data relative to expectations) have been favourable for Australia for much of 2022, having favoured to New Zealand for much of H221. This relative economic performance coincided with AUD/NZD cross rate weakness in H221 and strength in H122. We continue to see relatively more challenging economic conditions ahead for NZ than Australia, with any catch-up by Australia to NZ economic weakness only seen materialising later in 2023.”