Antipodean's outlook: focus on RBA and RBNZ - Westpac

Analysts at Westpac offered an outlook for the antipodeans FX and money markets.

Key Quotes

"AUD/USD 1 day:  The market leaning slightly more towards an August RBA cut is partly offset by a weaker US dollar, which should keep AUD/USD mostly inside a 0.7450-0.7500 range today.

AUD/USD 1-3 month: The uncertainty generated by Brexit plus further RBA easing should be negative for the AUD during the months ahead. We target sub-0.72.

NZD/USD 1 day: Resilient NZD should trade a 0.7000-0.7100 range today.

NZD/USD 1-3 month:  The uncertainty generated by Brexit plus further RBNZ easing should be negative for the NZD. We target 0.67.

AUD/NZD 1 day: Heading towards 1.0550 today, fuelled by expectations of the RBA next week.

AUD/NZD 1-3 month: We expect both the RBA and RBNZ to cut their policy rates in August, to 1.5% and 2.0% respectively.  Relative central bank paths are thus neutral for the cross. Multi-month, though, there is a case for higher, towards 1.0800, given it is currently well below fair value implied by interest rates, commodity prices and risk sentiment.

AU swap yields 1 day: The 2yr should open around 1.73% while the 10yr should open around 2.13%.

AU swap yields 1-3 month: If the RBA cuts to 1.5% as we expect, then the 2yr should eventually find a base around 1.7%. However the main risk is that markets expect a sub-1.5% cash rate.

NZ swap yields 1 day: NZ 2yr swap rates should open 2bp lower at 2.06% while the 10yr should open 3bp lower at 2.48%.

NZ swap yields 1-3 month: Slightly lower. The OCR should be cut to 2.0% in August, but the risks are it could fall further later on, which means the 2yr could test 2.00%."