Via ANZ:
- Following the formation of the coalition government in New Zealand, AUD/NZD has made a definitive break higher and will form a range around fair value (1.1250)
- A sustained move higher from there will be contingent on factors on both sides of the Tasman: relative business confidence, migration and the stance of the two central banks.
- While risks are tilted higher, we are not yet convinced that these factors have fallen into place.
Uncertainty will continue to mount until the policies of the new coalition government have been made clear. FX markets will particularly focussed on what happens to the Reserve Bank Act, how business confidence reacts to the government and what the housing and immigration policies look like. Offsetting this will be how much the impending fiscal expansion surprises positively. How these factors balance will be critical to the RBNZ’s outlook and, by extension, the NZD.
