Westpac: Which Way Will The Ranges Break?

Westpac note that "AUD/NZD has often been lively in recent months but has struggled to sustain range breaks, especially under NZ$1.06 and above NZ$1.08. The cross has had to absorb dramatic gains in the prices of key commodities of both Australia and New Zealand, along with keen market interest in pricing the exit of current monetary policy settings at both the RBA and RBNZ."

• "Forecast returns to New Zealand farmers have been revised higher after the recent surge in dairy prices at auction. Overall NZ's terms of trade continues to trend firmly higher. But prices and volumes of Australia's key commodity exports have been very robust through the pandemic. Indeed, Australia has recorded trade surpluses for >3 years and is running current account surpluses in contrast to ongoing deficits in NZ."
• "The relative monetary policy "vibe" has favoured the Kiwi since markets stopped pricing a negative cash rate in Nov 2020. OIS markets now price a sizeable risk of a rate hike this year."
• "However, we expect such expectations to be disappointed, with the cash rate on hold through 2021 and also 2022. We also expect no move in the RBA cash rate in that time and for QE to continue into 2022. But price action suggests AUD/NZD is less vulnerable to yield spread gyrations at the moment. Our fair value estimate remains well above spot. We look for AUD/NZD to find support in the mid-high NZ$1.06s, with multi-week scope for another run at NZ$1.10."