The emergence and rise of domestic Covid-19 cases in both antipodean economies weighed heavily on AUD and NZD in the middle part of August. However, with authorities shifting from an eradication policy to one that relies on vaccines at a time when distribution began to rapidly increase, the respective currencies recovered swiftly and now trade in line with our 1-month September forecasts. A hawkish monetary policy backdrop, albeit to differing extents, has also provided a tailwind to the FX recovery, but the degree to which both AUD and NZD can sustain their rallies largely depends on vaccine progress and the ability for the respective economies to reopen on a structural basis.
As things stand, we expect the Kiwi dollar to outperform in the short-run due to diverging monetary policy with Australia, however, a more stable macro backdrop in February 2022 should enable the RBA to start ramping up its normalisation cycle and thus AUD should benefit from a delayed tailwind.
Read Monex’s full antipodean currency update here:
Author: Simon Harvey, Senior FX Analyst