AUD/NZD: Divergence between RBNZ and RBA to drive the pair close to parity – ING

According to economists at ING, the AUD/NZD pair is set to reach parity given the kiwi has not fully priced in the prospects of tightening from the Reserve Bank of New Zealand and the divergence with respect to the Reserve Bank of Australia. 

RBNZ delayed tightening is yet to show all its benefits

“NZD can count on a hawkish central bank to partly shield the downside risks stemming from a slowdown in the Asian – and in particular Chinese – economy.”

“The first rate hike was simply delayed because of the lockdown announcement in NZ: we expect back-to-back 25bp hikes in Oct. and Nov.”

“New Zealand is attempting to exit its worst covid crisis through new strict measures. This time the economic impact may be more tangible than earlier in the pandemic, but we doubt that’s enough to derail the RBNZ tightening plans, given strong employment and inflation backdrop, as well as housing concerns.” 

“We still think NZD hasn’t fully benefitted from the prospect of RBNZ tightening, and the divergence with the RBA may keep driving AUD/NZD closer to parity.”