AUD/NZD to benefit from yield differentials?

A strong 2-day rally this week suggests AUD/NZD has printed its swing low at 1.07266. Whilst NZ inflation data was stronger than expected in Q2 and saw AUD/ZD pull back to 1.0800, we suspect it is still lower from the prior reads to allow the RBNZ to hold rates steady with an economy already in a recession.

We therefore see today's retracement lower to 1.080 as a potential gift for bulls, and for a move to 1.0900 or even 1.1000 over the coming weeks. The RBA may still have to hike once or more and that could see expectations of a lower RBNZ-RBA cash rate and support AUD/NZD.

A break beneath this week's low invalidates the bullish bias.

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The market moved to the initial 1.0900 zone and has since produced choppy trade. Whilst the structure still remains bullish, yesterday's softer inflation data from AU makes the bullish case a little less desirable, so happy to step aside having reached our firt target.