Aussie’s One-Year Rally Versus Kiwi Is Peaking, Strategists Say
The Australian dollar’s year-long rally against its New Zealand counterpart may have topped out, as strategists signal hawkish central bank rhetoric in Wellington is bolstering the kiwi’s appeal.
The pair retreated from a 13-year peak after the Reserve Bank of New Zealand revealed Wednesday that policymakers discussed raising interest rates to combat stubborn price pressures. The cross weakened further Thursday as Governor Anna Breman the central bank would respond to any acceleration in core inflation with further rate increases.
The RBNZ’s hawkish pivot is undermining bets that the Reserve Bank of Australia’s rate advantage would push the cross higher. Those wagers had helped the Aussie rally more than 10% against the kiwi over the past year, a trend that’s now losing its fundamental support.
“It looks like upside is somewhat capped on the cross for now,” Richard Franulovich , head of FX strategy at Westpac Banking Corp. said, referring to the Aussie-kiwi currency pair.
“The Aussie showed its relative resilience during the Iran war, but RBNZ monetary policy was a hawkish surprise and could trigger a broader exiting of short kiwi dollar positions,” he said.
Westpac and ASB Bank now forecast a RBNZ rate hike in September from December after the central bank delivered a last week. Swaps markets have fully priced in a quarter-point increase by September and another by year-end, with a possibility of a third hike.
This hawkish repricing has squeezed the spread between the two nations’ debt. The yield gap between 10-year bonds from Australia and New Zealand has fallen to 26 basis points after hitting 44 basis points in January, the highest since 1996.
“The slightly more hawkish pivot by the RBNZ increases the chance that we’re close to the turning point in the long, drawn-out rally,” Jason Wong , FX strategist at Bank of New Zealand, said referring to the Aussie-kiwi gains. However, “New Zealand’s low rates relative to Australia remain an ongoing tailwind for the Aussie-kiwi cross.”
Traders will be watching RBA Deputy Governor Andrew Hauser’s comments this week to gauge if he matches RBNZ’s hawkish tone. He said further price pressures from the war would not be helpful.
The RBA hiked for a second straight meeting in March, and swaps markets are pricing in two more quarter point rate hikes by the central bank this year. The next policy decision is on May 5.
“Some of the Aussie’s relative advantage could weaken if the Aussie-kiwi yield spreads narrow slightly from a scaling back of hawkish market expectations for the RBA,” said Mahjabeen Zaman , head of FX research at Australia & New Zealand Banking Group Ltd.
She sees Aussie-kiwi pair remaining in the 1.20–1.22 range in the near term. It was around 1.21 on Monday morning.
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