Bank of America Analysts Expect AUD to Strengthen Against NZD
Bank of America (BofA) analysts predict that the Australian dollar (AUD) may strengthen against the New Zealand dollar (NZD) in the medium to long term due to differences in monetary policy between the two countries.
According to BofA, the Reserve Bank of New Zealand (RBNZ) is expected to cut interest rates by 125 basis points over the remainder of the year, exceeding the 68 basis points currently priced in by markets. In contrast, the Reserve Bank of Australia (RBA) is anticipated to lower rates by just 50 basis points, slightly less than the 63 basis points expected by investors. This divergence could create a more favorable environment for AUD/NZD appreciation.
In the short term, technical indicators such as the 14-day Relative Strength Index (RSI) suggest that AUD/NZD is oversold. However, BofA remains cautious, citing past instances—such as in late 2022—where oversold conditions did not lead to a sustained rebound. During that period, AUD/NZD fell from 1.1075 to 1.0515 despite similar signals.
Additionally, BofA's Liquid Cross Border Flows (LCBF) indicators show that hedge funds currently hold short positions on NZD. If these positions are unwound, AUD/NZD could face downward pressure. Nonetheless, BofA identifies the 200-week moving average, around 1.0850, as a key support level where potential gains could emerge.
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