AUD/NZD: Likely To Rise Into 2021 As Economic Risks Make The AUD Less Risky

Both AUD and NZD seem risky to hold in a world of such high macroeconomic uncertainty, following the emergence of COVID-19. Nevertheless, AUD has shown a historical ability to sustain a long-term “premium” over NZD (based on a Purchasing Power Parity model). As Australia inflation has dipped into negative territory this year (in Q2), the real yield for AUD/NZD seems to have improved significantly. Meanwhile tourism is a materially more significant contributor to NZ GDP versus AU GDP. This is also reflected in a sharper GDP fall in Q2 for NZ. In the medium term, while AUD/NZD may attempt to establish a trading … (full story)

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