On Tuesday Westpac noted that "after....>

AUSSIE-KIWI: On Tuesday Westpac noted that "after stability around 1.09-1.10

from late Aug through early Oct, AUD/NZD has lurched downwards, printing lows

since Jun. The catalyst for the NZD revival was the pickup in New Zealand

inflation in the Q3 CPI release, which prompted mkts to slash pricing for an

RBNZ rate cut next year. Australia's Q3 CPI (31 Oct) should be on the soft side.

Yet the underlying trend in yield differentials remains one of AUD recapturing

lost ground, supporting a rising AUD/NZD. Moreover, relative commodity prices

are trending firmly in AUD's favour, with coal & iron ore prices leading the way

as dairy prices continue to weaken. These trends leave our estimates of AUD/NZD

short term fair value around 1.11. So harder-to-quantify factors appear to be

weighing on the cross. AUD/NZD has not closed above 1.10 since the ousting of

Malcolm Turnbull as Australia's prime minister, which increased the focus on the

next federal election. AUD also tends to underperform NZD when the US-China

trade deteriorates, which it has in recent weeks - even though commodity prices

are no longer showing the effects. All up, the short term risks seem to be for a

test of the 1.0650-1.0700 area, before a recovery to 1.0850-1.0900 multi-week."