AUD/NZD will trend higher in coming weeks – Westpac

Sean Callow, Research Analyst at Westpac, suggests that their short term fair value estimate of AUD/NZD has not been below 1.10 since June 2016 and rose as high as 1.15 in November before easing back to 1.13 by early January 2017, cooling slightly in line with coking coal prices. 

Key Quotes

“The gap between the spot rate and 1.13 fair value is a function of both yield spreads and relative commodity prices.”

“This is key to our expectation that AUD/NZD will trend higher in coming weeks, though we don’t expect such a wide gap to be closed quickly. Fair value estimates are always a simplification of a currency pair’s fundamental drivers, so deviations from the spot rate can persist for some time.”

“The current phase of AUD/NZD undervaluation is both unusually large and sustained.”