So says Goldman.
AUD/NZD: Further to fall.AUD/NZD has come off of the July highs, and we think there is room for further downside.
Markets have taken out much of the stretched front-end pricing we highlighted a few weeks ago.
But we would argue that there is still a bit too much divergence implied in the cross.
The upcoming data suggest room for Australia to “catch down” a bit to New Zealand, and could put downward pressure on AUD.
For instance, Australia’s labor market has continued to soften and lead indicators on labor demand look weak.
Plus we expect inflation in both Australia and New Zealand to look much softer in July.
RBA and RBNZ guidance may be stickier than the data though.
The RBA could be reluctant to shift to a more dovish stance while the RBNZ remains comfortable signaling further cuts.
The RBNZ delivered a surprise cut this week, suggesting a slightly more dovish reaction function than markets may have expected.
Also, any relaxation of risk-off pressures in the near-term could make it difficult for AUD to weaken much further.
Ultimately though, we think there is room to press AUD/NZD a bit lower.
Australia’s backdrop is not far behind New Zealand’s.
The RBNZ hiked further and faster than the RBA at the start of the cycle, thus the economy has cooled more quickly.
While rates may have to remain on hold for longer in Australia to get the same result, more cooling—and a slightly weaker currency vs NZD—does not seem far behind.
Cash rate futures currently have 237bps of easing priced for NZ versus only 87bps for Australia.
Even allowing for the higher starting rate, this is pretty stupid.
As bulk commodity prices keep falling over 2025/26, the Aussie cash rate is going to fall a lot further.
