After trading below 1.2940 yesterday, AUD/NZD finds itself today back up at near decade highs around 1.3100. The pair recovered overnight back to 1.30 but it was today’s release of much worse than expected retail sales numbers in NZ that took the pair up another big figure.
This is a cross normally dicated by interest rate differentials which are now strongly in favour of the AUD. The market was expecting the RBNZ (NZ c/bank) to hike rates in June but that now appears in doubt.
Whatever the case however interest rates in Australia are set to remain above NZ rates for a very long time. One suspects the market cannot get its head around this fact after the reverse being true for so many years.
A blowout to 1.40 is quite possible with positioning for long AUD rather tame at the moment. Fundamentals eventually work out and unless we move into another armageddon situation, this appears a very low risk trade. For those that like a positive carry, NZ official rates are at 2.5% whilst Australia’s cash rate stands at 4.25%.
