The relationship between AUD/NZD and risk appetite is not always clearly positive but for now it implies that rallies in the cross will be difficult to sustain multi-week as Covid-19 news is sure to worsen, analysts at Westpac Institutional Bank brief.
Key quotes
“AUD/NZD is a long way below its long term average. The 1.00-1.05 range accounts for a mere 4% of the days since the NZD float in 1985. However, the pair has closed in the recent 1.05- 1.10 range on a hefty 18.1% of days.”
“AUD/NZD fair value has risen about 2 cents so far in 2020, to above 1.14. Our fair value model is simple, containing only yield spreads and commodity spreads.”
“Our end-June AUD/NZD forecast is 1.03. Near term though, renewed bouts of risk aversion are likely to ensure we see more trade around say 1.00-1.01 than 1.03-1.04.”
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