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AUSSIE-KIWI: Westpac write "AUD/NZD spiked above NZ$1.07 in April on New
Zealand's low Q1 CPI data and again in May when the RBNZ cut its cash rate. But
the RBA's dovish turn seems to have been more potent on the cross in recent
months. RBA governor Lowe has effectively committed to another cut, to 1%, but
seems reluctant to go further, hoping for help from fiscal policy. Interest rate
markets however are pricing a terminal rate below 0.70%, compared to around 1.0%
for the RBNZ. This arguably fits with the stimulus Australia could need to cut
its unemployment rate to the desired 4.5%, while NZ is already at 4.2%. The
focus on the RBA seems likely to persist well beyond the expected cut to 1%. The
cross is also weighed by the apparent market preference for AUD as a proxy for
US-China trade relations, where a major breakthrough seems some way off. This
points to a probe of NZ$1.03-1.04 multi-day/week. But relative commodity prices
strongly favour AUD, with Australia's trade surpluses surging over the past 12
months, keeping our short term fair value estimate for the cross well above
1.10. We see scope for AUD/NZD to recover to NZ$1.07 multi-month."