Westpac Wary Of Downside Risks

Westpac note that “AUD/NZD has risen sharply over the past two months. But the magnitude and speed of the gain left it technically stretched and vulnerable to a reversal. We see potential for such a reversal to reach the NZ$1.0750-1.0850 area during the month ahead.”

• “Yield spreads usually set the immediate tone for AUD/NZD and after hitting 18-month highs earlier last week just ahead of the RBA meeting, may now start to reverse.”
• “While the hawkish recalibration to RBA policy expectations has run its course, RBNZ policy expectations remain slanted to rate cuts and vulnerable to a reset.”
• “Stickiness in domestic sources of NZ inflation will likely require the RBNZ OCR to remain at its present level until at least the beginning of 2025, yet rates markets price in almost 50bp in rate cuts by the end of 2024.”
• “For those looking to hedge at current levels, options may be worthy of consideration given implied volatility is currently at record lows.”