Westpac note that "the scale of the.....>

AUSSIE-KIWI: Westpac note that "the scale of the AUD's underperformance vs. NZD

in mid-March as risk aversion surged remains puzzling but shouldn't be forgotten

& leaves a cloud over AUD/NZD if global risk appetite deteriorates. Otherwise,

the AUD/NZD recovery since March seems to be on a sound footing. Our fair value

estimate has been well above 1.10 for many quarters, backed by Australia's

stronger external position. Australia's current a/c flipped to surplus in 2019

and March's trade surplus was a record high. Australia's export commodity mix

seems better placed than NZ's to benefit from China and regional recovery. The

relative GDP profile is also starkly in Australia's favour, with New Zealand

facing a stunning -17% qtr GDP collapse in Q2, double Australia's decline. This

is likely to leave the RBNZ with more work to do whereas the RBA seems confident

that its YCC stance will suffice & Australia has more fiscal flexibility than

previously thought. While the RBNZ insists the OCR will remain at 0.25% into

'21, we still see -ve interest rates as likely in NZ, contrasting with the RBA.

This debate should help limit AUD/NZD pullbacks near term to about 1.06, with

multi-week scope for 1.0860 and perhaps even a test of 1.10 resistance."