AUD/NZD: Undervalued? - Westpac

Richard Franulovich, head of FX strategy at Westpac, suggests that terms of trade proxies and interest rate differentials have moved slowly but surely in favour of a higher AUD/NZD in the last three years, but the cross has been mostly unresponsive leaving it notably undervalued.

Key Quotes

“The recent sharp run up in AUD/NZD from around 1.03 to 1.06 in the wake of the dovish RBNZ late March has only made a small dent into unwinding the undervaluation of the cross.”

“In addition to a more favourable commodity and yield story, a relatively stronger data flow in Australia vis-à-vis New Zealand in recent weeks makes for a trifecta of bullish developments for the cross.”

“The cross does not slavishly track the data pulse differential but it nevertheless also points to a notably firmer cross.”