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22 May 2013
Flash: Bearish NZD/AUD makes bid to normalcy – BNZ
FXstreet.com (Barcelona) - According to the BNZ Research Team, “The fact the NZD now appears to have a higher beta than the AUD is significant – rather than anything unusual, it should be interpreted as a return to normality.”
“We’ve previously outlined the three key determinants of a currency’s risk profile as: external imbalances, interest rates, and economic sensitivity to commodity prices. The fact the AUD was the more ‘pro-risk’ currency from 2009-2012 reflected in part the AUD’s higher commodity price sensitivity and weaker external accounts picture.” the team adds.
However, the more important factor was interest rates. In a departure from historical norms, Australian yields moved above those of NZ in June 2008. This meant that, in so-called ‘risk on’ periods when the carry trade was in full flight, the AUD tended to outperform the NZD as its higher yield sucked in more capital inflows. Now, this is changing. NZ interest rates have finally moved back above their Australian counterparts. This has contributed in no small way to the NZD reclaiming its status as the higher risk currency.
“We’ve previously outlined the three key determinants of a currency’s risk profile as: external imbalances, interest rates, and economic sensitivity to commodity prices. The fact the AUD was the more ‘pro-risk’ currency from 2009-2012 reflected in part the AUD’s higher commodity price sensitivity and weaker external accounts picture.” the team adds.
However, the more important factor was interest rates. In a departure from historical norms, Australian yields moved above those of NZ in June 2008. This meant that, in so-called ‘risk on’ periods when the carry trade was in full flight, the AUD tended to outperform the NZD as its higher yield sucked in more capital inflows. Now, this is changing. NZ interest rates have finally moved back above their Australian counterparts. This has contributed in no small way to the NZD reclaiming its status as the higher risk currency.