AUD/NZD: 1.0400/1.05 to offer congestion - Westpac

Analysts at Westpac give their forecasts for the antipodean rates.

Key Quotes:

"AUD/NZD 1 day: Retains negative momentum, but we’d expect the 1.0400-1.0500 area to provide congestion (as it did in Dec and Jan).

AUD/NZD 1-3 month: Higher towards 1.10. The cross remains below fair value estimates implied by interest rates, commodity prices and risk sentiment, although it is closing the gap. There’s potential for a near-term rebound in iron ore prices, given demand for steel (24 May).

AU swap yields 1 day: The 3yr should open around 1.87%, the 10yr around 2.68%.

AU swap yields 1-3 month: Our RBA outlook (on hold for some time) is anchoring front end valuations. We expect 3yr swap rates to remain in a 1.8% to 2.3% range, with core inflation still below 2%. (28 May)

NZ swap yields 1 day: NZ 2yr swap rates should open down unchanged at 2.23%, the 10yr unchanged at 3.23%.

NZ swap yields 1-3 month: The RBNZ has signalled the next cycle – a tightening one – will not start until the end of 2019. That will anchor the short end, although markets will not abandon their expectations for tightening as early as mid-2018 which means occasional spikes in the 2yr will be likely. A 2yr swap range of 2.20%-2.60% is expected. The long end will continue to follow US yields, which we expect to rise. That means the curve steepening trend should continue."