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Relative Data Outcomes Driving Spot Towards 1.1000 Test

AUDNZD

The AUD/NZD cross remains on the front foot supported by recent data outcomes skewed in the AUD's favor. Resistance is at 1.0989 (July 2 high), a break here would open a move to 1.100 (May 13 high), beyond that lies May 7 highs of 1.1031.

  • This morning's firmer retail sales data, coupled with stronger building approvals data, has supported AU yield momentum. Risks of an August hike have risen, although we remain sub last week's highs.
  • We have the RBNZ meeting next week, where no changes are expected. Still, survey data has pointed towards NZ being on a more favorable path to achieve its inflation target than Australia.
  • The chart below plots AUD/NZD versus both the 2yr AU-NZ swap spread and relative commodity prices. The 2yr spread is still negative but has clearly trended in AUD's favor and remains the strongest correlator with AUD/NZD moves. (63% in levels terms for 2024 to date)
  • Relative commodity prices may also swing more in AUD's favor. Iron ore prices are up from recent lows, while dairy prices faltered during the overnight auction. Still the correlation between relative commodity prices (proxied by Duetsche Bank (for AU) and CBA (for NZ) series) have a negative correlation with AUD/NZD movements so far this year.
  • Milk powder prices fell to $3,218 from $3,394, while the weighted average price for all milk products was $3,782 per ton, with the GDT price index dropping 6.9%. This was the second largest drop on record, although it should be noted we are still 11.2% higher than the lows made around this time last year.

Fig 1: AUD/NZD Versus Au-NZ 2yr Swap Spreads & Relative Commodity Prices


Source: MNI - Market News/Bloomberg

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