Market outlook: watching RBA and easing bias - Westpac

Analysts at Westpac offered a market outlook for the antipodeans.

Key Quotes:

"AUD/USD 1 day:  Upward momentum has resumed, a retest of 0.7700 expected.

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 during the months ahead, 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: Trying to resume its multi week uptrend, above 0.7250 would confirm.

NZD/USD 1-3 month:  The RBNZ’s easing cycle combined with the Fed tightening in December should push the NZD lower towards 0.69 during the months ahead, although recent BOE and BOJ easing have made the NZD even more attractive to global investment flows such that a test of 0.73 is possible first.

AUD/NZD 1 day: The 1.0600 area should support the cross for an eventual push higher.

AUD/NZD 1-3 month: The RBNZ should cut the OCR in August, matching the RBA, but the RBNZ’s policy outlook should be more dovish, arguing for a higher AUD/NZD. 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 1.64% while the 10yr should open around 2.09%.

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 up 1bp at 1.95%, while the 10yr should up 1bp at 2.39%, following the rise 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."