Australian Dollar: Faces corrective phase versus New Zealand Dollar – MUFG
MUFGs Derek Halpenny and Abdul-Ahad Lockhart report that the AUD/NZD rally may have peaked as rate differentials begin to turn. They stress that the Reserve Bank of New Zealand (RBNZ) signalled forthcoming hikes, while the Reserve Bank of Australia (RBA) can pause longer. Their empirical work suggests that if spreads compress, the recent sharp AUD/NZD drop could mark the start of a broader downside correction. Rate spread turn threatens AUD/NZD gains “We covered the Australian dollar in the FX Weekly (here) that we released on Monday with the key message that the strong gains for the Australian dollar may be coming to end and that if rate spreads as a driver of FX was returning as a more dominant driver then there were potential headwinds ahead for AUD.” “The RBNZ meeting yesterday potentially marked a turn in that spread, which is likely to see some of that near 14% gain in AUD/NZD reverse. The RBNZ made clear that a hike was coming and the split 3-3 vote that kept the policy rate unchanged at 2.25% (Governor Bremans vote to hold swung the decision) was accompanied with a communication of hikes to come.” “We see a hike at the next meeting in July, which is