NZD/AUD cross consolidating around 0.9600 - Westpac

Imre Speizer, Research Analyst at Westpac, notes that the NZD/AUD cross stalled just ahead of the 0.9700 area and is now consolidating around 0.9600 with no directional momentum.

Key Quotes

“Commodities remain broadly supportive of AUD but otherwise the news flow has been unhelpful for the AUD: Dec consumer sentiment plunged in apparent response to the Q3 GDP contraction, while the rebound in Nov jobs is blunted somewhat by the uptick in unemployment. More immediately, whether Australia loses its AAA credit rating this week or not, it will dominate the headlines around MYEFO. These have contributed to NZD/AUD trading well above fair value.”

“The government’s mid-year fiscal update (MYEFO) is due Monday, with tension over the ratings agencies’ response. The minutes from the RBA Board’s 6 Dec meeting are due on Tue. The next ABS data release of note is on 6 January: Nov trade, followed by Nov retail sales on 10 Jan.”

“3 months: Eventually we see NZD/AUD starting to reflect the outperformance of AU commodities as well as better economic data ahead. We expect a retest of the 0.9300 area which was visited a number of times during the second half of 2016.”

“Our fair value model suggests the cross is around 10% overvalued at present, based on the movement to date in respective commodity prices and interest rates. We’re not expecting the cross to snap back to fair value anytime soon, since it’s been overvalued for much of this year, but it should at least start to move in that direction.”