AUD to strengthen against the NZD, but weaken against the USD – HSBC

On 4 October, the Reserve Bank of Australia (RBA) surprised the market with a smaller-than-expected rate hike of 25 bps. A day later, the Reserve Bank of New Zealand (RBNZ) delivered its fifth consecutive 50 bps hike. In the view of economists at HSBC, the recent dip in AUD/NZD is unlikely to be sustainable.

Australia’s fundamentals look relatively stronger than New Zealand’s

“With the dovish surprise from the RBA and the hawkish surprise from the RBNZ, the AUD weakened against the NZD, with AUD/NZD declining. However, we think AUD/NZD is likely to move higher, as Australia’s fundamentals look stronger than New Zealand’s on a relative basis, with fewer hard-landing risks and a stronger current account position.”

“When compared to the ‘safe haven’ USD, both commodity currencies are likely to face further downside risk, amid vulnerable risk sentiment, higher US yields, and slowing global growth.”