Credit Agricole CIB FX Strategy Research notes that neither of the antipodean central banks wants to join the hawkish G7 bandwagon anytime soon.
“Both Australia and NZ have weak wages growth and rallies in their currencies would significantly dampen inflation. The RBA and RBNZ would like to see the FOMC significantly further along in it tightening cycle and the USD stronger before switching to tightening biases themselves. So AUD and NZD will continue to be largely driven by external factors, especially UST yields.
We continue to think AUD and NZD head lower, the NZD at a greater rate given its higher sensitivity to UST yields than the AUD. We also continue to think Fonterra was too bullish on its pay-out forecast for the 2017/2018 season and will have to revise it lower, which will weigh on the NZD. Iron ore prices we think have found a bottom around USD50 per tonne,” CACIB argues.
In line with this view, CACIB sticks to its long AUD/NZD position from 1.0460 targeting a move to 1.08.
Source: Credit Agricole CIB Research
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