Outlook on antipodeans - Westpac

Analysts at Westpac explained their outlook on the day ahead in the antipodeans.

Key Quotes:

"AUD/USD 1 day:  Upward momentum has stalled but risks remain skewed to the upside, the 0.7750 area vulnerable.

AUD/USD 1-3 month: The RBA’s easing bias combined with the Fed’s tightening bias should push the AUD lower towards 0.74 by year end, although recent BOE and BOJ easing have made the AUD even more attractive to global investment flows such that a test of 0.77 is possible first.

NZD/USD 1 day: Likely to test the 0.7325 area again during the next few days.

NZD/USD 1-3 month:  The RBNZ’s easing cycle combined with the Fed tightening in December should push the NZD lower towards 0.70 by year end, although recent BOE and BOJ easing have made the NZD even more attractive to global investment flows such that a break above 0.74 is possible first.

AUD/NZD 1 day: Heading towards 1.0500 in response to the recent fall in the iron ore/milk powder ratio.

AUD/NZD 1-3 month: The RBNZ is likely to cut again in November, and should maintain a more dovish outlook than the RBA. In addition, the cross is well below fair value implied by interest rates, commodity prices and risk sentiment. We target 1.08.

AU swap yields 1 day: The 2yr should open around 1.62% while the 10yr should open around 2.08%.

AU swap yields 1-3 month: If the RBA sits tight at 1.5% during the remainder of this year the 2yr should eventually find a base around 1.65%. However the main risk is that markets continue to price in a sub-1.5% cash rate.

NZ swap yields 1 day: NZ 2yr swap rates should open unchanged at 1.94% (the record low), while the 10yr should open 1bp lower at 2.38%, following the slight fall in US rates overnight.

NZ swap yields 1-3 month: Slightly lower. The OCR is likely to be cut to 1.75% in November. That should result in a 2yr swap rate of around 1.90%, although the risk is it could be lower if markets expect a 1.5% terminal OCR."