NZD/AUD: Now ”Expensive”, But a Correction Looks Unlikely

The NZD/AUD continues to soar, and today has made fresh 5-year highs above 0.8900. We thought it might be worthwhile cross-checking the recent gains against what short-term ‘’fundamentals’’ ar saying.

Our short-term fair-value model for the NZD/AUD is driven off NZ-AU rate spreads (3-year swap), NZ-AU relative business confidence, and NZ-AU commodity price differentials. The model suggests that the current combination of these drivers is equivalent to a short-term ‘fair-value’ range of 0.8300-0.8600. This is about 250 pips higher than a month ago. The chart below shows that all three of the model’s inputs have contributed to the 2.5c shift up in fair value, albeit with interest rates doing most of the work.

Read the full report: FX Research



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