NZD/AUD to target the 0.9700 area during the weeks ahead - Westpac

NZD/AUD cross retains upward momentum and targets the 0.9700 area during the weeks ahead, expects Imre Speizer, Research Analyst at Westpac.

Key Quotes

“That area marked a peak in July and should at least provide some resistance to this rally.”

“The AUD has underperformed the NZD recently, despite AU commodities easily outperforming NZ’s. Part of the reason is undoubtedly skepticism that AU commodities can sustain the run. Another is the recent run of disappointing AU economic news.”

“We suspect the weak Q3 GDP result last week (-0.5% qoq) was a rogue print, with housing construction and public infrastructure sure to rebound. Export data has so far lagged the surge in commodity prices so we should get some good news on that front too.”

“After the last week’s dismal GDP data, any clues on a better Q4 will be watched closely. This week on Tue it’s Nov NAB business confidence, and on Wed we see Dec consumer sentiment from Westpac/MI but the market focus will be Nov labour data (Thu). Another poor jobs reading would reinforce the gloomy domestic theme.”

“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.”