Site banner

NZD/AUD Parity

25 February 2015 / ContactUs@harbourasset.co.nz / +64 4 460 8300

Australian travellers buying the kiwi dollar at foreign exchange conversion counters in airports are experiencing NZD/AUD parity. In wholesale markets, NZD/AUD could reach parity in the short term, but we expect to see sub 0.90 over the medium term. 

Monetary Policy 

Relative central bank policy is a primary driver of exchange rates. There is a strong correlation between expected relative monetary policy stances (illustrated by the 2 year swap rate differential) and the NZD/AUD. The limitation of market indicators, is that they are based on market expectations, which may not be delivered. Last month, the RBA reduced interest rates. With another cut on the horizon, the market could extrapolate these trends putting upward pressure on the NZD/AUD. With the market tendency to jump ahead, we could briefly see the NZD/AUD hitting parity then reverting towards fundamentals in the medium term. 

Relative Fundamentals 

In the long run, the NZD/AUD will tend to be driven by differences between New Zealand and Australian GDP, interest rates, current accounts, inflation and money supply. Currently the market is focused on deteriorating Australian fundamentals with another RBA cut in the pipeline and weaker resources forecasts as Iron Ore and Oil prices fell over 50% in the last year. However, New Zealand fundamentals also point to a weaker currency - moderating GDP growth, the RBNZ announcement in January that the OCR will be on hold for longer, inflation at 1% at the lower end of the target band, and a persistent current account deficit. In New Zealand there is also a weaker commodity story, with whole milk prices falling over 50% in the past year, although there was a small recovery on low volumes in February. Balancing the New Zealand and Australian fundamentals, our model suggests fair value is under 0.90, which is higher than the long run average reflecting New Zealand’s economic strength relative to Australia, but well under the current level of the NZD/AUD cross rate.

Harbour’s research is available on their website, see: www.harbourasset.co.nz

IMPORTANT NOTICE AND DISCLAIMER
The Harbour Navigator is provided for general information purposes only. The information is given in good faith and has been prepared from published information and other sources believed to be reliable, accurate and complete at the time of preparation but its accuracy and completeness is not guaranteed. Information and any analysis, opinions or views contained herein reflect a judgement at the date of publication and are subject to change without notice. To the extent that any such information, analysis, opinions or views constitute advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised advice under the Financial Advisers Act 2008, nor do they constitute advice of a legal, tax, accounting or other nature to any persons. Investment in funds managed by Harbour Asset Management Limited can only be made using the Investment Statement, which should be read carefully before an investment decision is made. The price, value and income derived from investments may fluctuate in that values can go down as well as up and investors may get back less than originally invested. Where an investment is denominated in a foreign currency, changes in rates of exchange may have an adverse effect on the value, price or income of the investment. Reference to taxation or the impact of taxation does not constitute tax advice. The rules on and bases of taxation can change. The value of any tax reliefs will depend on your circumstances. You should consult your tax adviser in order to understand the impact of investment decisions on your tax position. No person guarantees repayment of any capital or payment of any returns on capital invested in the funds. Actual performance will be affected by fund charges. Past performance is not indicative of future results, and no representation or warranty, express or implied, is made regarding future performance. To the maximum extent permitted by law, no liability or responsibility is accepted for any loss or damage, direct or consequential, arising from or in connection with this presentation or its contents.

NZD AUD Parity

 
 
+ Text Size -
Original generation time 1.4128 seconds.