NAB: Still Has Upside Amid Relative Economic Strength

NAB note that “in addition to our downward AUD revisions, our new central forecasts also show further downside potential for NZD over the next six months. Relative to Australia, however, New Zealand’s economic outlook remains soft against a backdrop of tightening financial conditions amid elevated mortgage rates and steadily falling house prices, while negative net migration remains and a slow return of global tourism are additional headwinds.”

• “The tweak to our AUD/NZD projection is insignificant. Directionally we have been calling for a higher AUD/NZD cross rate all year, reflecting more upside in Australian vs. NZ commodity price relativities, the scope for AU/NZ rates spreads to increase, and the more challenging domestic economic conditions in NZ vs. Australia.”
• “These forces remain in play and we see the cross stretching further to around NZ$1.13 in the second half of the year before reversing course.”