AUDNZD moving too close to parity for RBNZ's liking

AUDNZD moving too close to parity for RBNZ's liking

The combination of the drawn-out election in Australia and comments from RBNZ yesterday sent AUDNZD crashing 2%. Two more trading sessions like yesterday and we are below parity.

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RBNZ are not likely to want this with their key trading partner. So whilst inflation data today and comments from RBNZ have greatly diminished expectations for a rate cut, the higher Kiwi Dollar is a problem form RBNZ, so may have to become more active to talk their currency lower. The fact that NZ TWI (trade weighted index) remains at its highest level since 2015 means tradable inflation is likely to contract for a 3rd consecutive quarter. Tradable inflation and higher Dollar have been a key metric in RBNZ’s statements so a cut is no completely off of the cards yet, especially if we do see tradable CPI contract again. However, until then sentiment remains to buy NZD.

Nonfarm in focus

The Australian Dollar has been reluctant to move this week and NZ crosses go from strength to strength. Against this backdrop a strong employment set from US tonight could favour the Kiwi and send AUDNZD below 1.30. Now below the 1.40 handle any rallies will likely be faded into. The trend has been bearish since the break below 1.1033 and pullbacks have been shallow, to suggest a bottom is not yet in site.

Sustained, directional moves have been hard to come by since Brexit and tonight’s NFP is the most likely data-set to break this pattern. And quite frankly, we’d welcome good employment data from the US to take our minds off of Brexit. It may only take a mediocre payrolls figure to send the Greenback higher Australian Dollar back below the 74c.

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