AUD/NZD fair value up to 1.13 – Westpac

Sean Callow, Research Analyst at Westpac, suggests that their short term (weekly) fair value estimate of AUD/NZD has not been below 1.10 since July and has risen from 1.11 in early September to 1.13 in late October, mostly due to the outperformance of Australia’s commodity export prices.

Key Quotes

“In particular, coal and iron ore prices have outstripped dairy prices.

The gap between the spot rate (below 1.07 at time of writing) and 1.13 fair value is a function of both 2 year yield spreads and relative commodity prices.

This is key to our expectation that AUD/NZD will trend higher in coming weeks, though we don’t expect such a wide gap to be closed quickly. Fair value estimates are always a simplification of a currency pair’s fundamental drivers, so deviations from the spot rate can persist for some time.”