FxWirePro Medium Term Outlook: Long aussie against kiwi targeting 1.24

The story for this pair is monetary policy divergence. Though we are seeing a strong bounce back in some of the agricultural commodities, it would be fair to say that the Australian economy has weathered the commodity storm much better. In addition to that, recent bounce back in the iron ore and the natural gas prices will benefit the economy further. Australia also handled the housing bubble ahead of New Zealand and well, while the RBNZ is struggling to contain that risk, especially in Auckland.

We expect, the Reserve Bank of New Zealand (RBNZ) to be much more dovish than its Australian counterpart, the Reserve Bank of Australia (RBA). The current interest rate maintained by RBA is at 1.75 percent, while the overnight cash rate at RBNZ is held at 2.25 percent. We expect the spread in this two rates to fall to zero by next year.

Hence, in the medium term, we expect, the Aussie to rise to as high as 1.24 against the kiwi, however, in the near term there could be a test of parity, at which we would recommend building fresh longs. AUD/NZD is currently trading at 1.056.