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2-Year Rate Differentials continue to narrow and are now at their narrowest level since early October, when the cross was ~$1.12.
- The spread has tightened ~63bps since its December cycle low.
- AUD/NZD has dealt in a narrow range around $1.10 this week, bulls are still looking to break the 11 Nov high at $1.1045 whilst bears target Feb lows at $1.0889
- The RBNZ meeting on Wednesday presents the next macro risk event, Kiwibank noted yesterday that they felt given the impact of Cyclone Gabrielle the RBNZ shouldn't hike rates next week, although the bank still expects the bank to deliver a tightening.
- OIS markets have ~45bps of tightening priced into the meeting, and the terminal rate of ~5.3%.
Fig 1: AU-NZ 2 Year Swap vs AUD/NZD Daily Spot
Source: Market News International (MNI)/Bloomberg
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