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Scope for AUD/NZD upside – Deutsche Bank

FXStreet (Delhi) – Adam Boyton, Chief Economist at Deutsche Bank, notes that the labour market trends and also interest rate differentials suggest upside in AUD/NZD. AUD/USD appears fairly valued versus rate differentials.

Key Quotes

“We typically view interest rate differentials as providing the most reliable guide to AUD/NZD. The current rate differential suggests upside in the cross. Of course, we need to also check market pricing versus underlying economic fundamentals. In this regard we typically find relative trends in employment to population ratios a good guide to AUD/NZD.”

“Looking ahead, we continue to expect a largely sideways trend in the Australian unemployment rate versus further increases in New Zealand – something that should help see additional AUD/NZD upside. A note of caution for AUD/NZD longs is flagged by the ratio of iron ore to milk prices although even here developments over the past two months have been marginally in the AUD’s favour (with the ratio of iron ore to milk prices off its lows).”

“Turning to AUD/USD, we find the pair broadly consistent with current frontend spreads, with both Australian and US front ends having sold off over the past month or so. With tomorrow’s (Tuesday’s) final RBA meeting for the year likely to be a non-event, this month’s Fed meeting is shaping up as much more pivotal for AUD/USD.”

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