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One of the strongest trends in the second half of 2013 has been the downward move in AUDNZD, which has moved from 1.18 to below 1.10. The prospect of policy divergence in the first half of next year remains strong, with the RBNZ potentially cutting rates and the RBA having the scope to cut rates further from the current 2.50%.

Such divergences in policy have been pretty rare in recent years, so if we get further hints in the RNBZ statement this evening, then the scope for a further move south on AUDNZD remains strong, with a move to parity (current 1.1030) on the cards for the first half of 2014.

20131211 Table

Data/Event Risks

FX:  Data on the light side today, with no major releases for the majors.

NZD:  The central bank (RBNZ) rate decision is scheduled for 20:00 GMT. There is no expectation of a rate change, but the focus remains on the statement. The prospect for higher rates remains strong in the first half of next year, but the central bank has voiced concerns at the potential for a stronger kiwi from this. Any hints of rises to come would be NZD supportive, especially vs. the AUD.

Latest FX News

USD:  The dollar little changed overnight despite a budget deal being reached which eases some of the automatic spending cuts (sequestration) and avoids another potential government shutdown in the early part of next year.

EUR:  EURUSD was just shy of 1.38 yesterday in a move that has seen the pair move up for the fifth consecutive week in a row. Note that money market rates continue to move higher, 3M money to 0.235% yesterday (another high for the year), with banks repaying excess liquidity to the ECB. This has added to the upward pressure on market rates and also offered support to the euro.

GBP:  Under some pressure in the early part of the European session, with cable moving towards the 1.64 level. Cable made a new high for the year at 1.6466 during Wednesday.

Further reading:

Bullard stated tapering is a valid option in December

EURUSD: Bullish, Eyes Further Upside