AUD/NZD sits fairly close to fair value – Westpac

In view of analysts at Westpac, AUD/NZD sits fairly close to fair value, according to Westpac’s short term model which includes yield spreads and commodities.

Key Quotes

“At 1.0905 it is only 0.5% above fair value of 1.0850, which is an immaterial difference relative to its history. Fair value itself has exhibited no directional trend over the past two years, which is understandable given the RBA and RBNZ’s policies have both been on hold over that period.”

“Zooming in, though, we can see that yield spreads have risen in the AUD’s favour, probably a result of the RBA’s commentary indicating the eventual move in the cash rate would be upwards (in contrast to the RBNZ’s “up or down”).”

“Commodities, too, have drifted slightly in the AUD’s favour, dairy prices softening gradually.”

“Looking ahead, we expect Australia’s economic outperformance to become a fresh theme supporting AUD/NZD even further, taking the cross above 1.1000.”