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Bank of America Sees AUD/NZD Weakness on Diverging Central Bank Policies
Bank of America is recommending that clients sell the Australian dollar against the New Zealand dollar (AUD/NZD), citing a growing divergence in monetary policy outlooks between the two nations' central banks that it believes is not yet fully priced by the market.
Widening Policy Gap
The firm's strategists highlight contrasting paths for the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ). Following a below-consensus inflation report and dovish commentary from RBA Governor Michele Bullock, BofA economists see near-term rate hikes as "highly unlikely."
They now forecast the RBA will keep its policy rate on hold until mid-2027, with rate cuts not expected to begin until August 2027. Conversely, BofA anticipates that "high and sticky inflation" in New Zealand will compel the RBNZ to tighten its policy, forecasting rate hikes in both September and December of this year.
Market Outlook and Positioning
AdBased on this widening policy gap, Bank of America is positioning for a "gradual move lower" in the AUD/NZD currency pair. The bank notes that few major economic data releases are expected to shift market pricing until Australia's monthly inflation print at the end of August.
The view is also supported by market positioning data from the Commodity Futures Trading Commission (CFTC). According to the report:
- Net non-commercial futures positioning shows that short bets against the NZD have only been partially unwound.
- Overall short positioning on the kiwi dollar remains near its lowest level in five years, suggesting significant potential for NZD appreciation if these positions are covered.
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