Market Outlooks for the antipodeans - Westpac

Analysts at Westpac offered the "Market Outlooks" for the antipodeans.

Key Quotes:

"AUD/USD 1 day:  Looking indecisive after yesterday’s multi-week high and two days out from the UK vote. We don’t expect it to stray too far from 0.7450 on the day.

AUD/USD 1-3 month: Multi-month we expect the US dollar to eventually find its feet and help drag AUD/USD lower. In addition, further RBA easing will be a negative. We target sub-0.72.

NZD/USD 1 day: Looking indecisive after yesterday’s multi-month high and two days out from the UK vote. We don’t expect it to stray too far from 0.7120 on the day.

NZD/USD 1-3 month:  Three months ahead we see markets pricing in further RBNZ easing (we expect a cut to 2.0% in August) and also pricing a greater chance of US Fed rate hikes. The NZ-US interest rate outlook thus argues for a lower NZD/USD, towards 0.6500.

AUD/NZD 1 day: Neutral, remains stuck in a 1.0420-1.0550 range.

AUD/NZD 1-3 month: The RBA surprised by cutting in May, which suggests another cut to 1.5%, probably in August. The RBNZ is also expected to cut, to 2.0% in August. Relative central bank paths are thus neutral for the cross. Multi-month, though, there is a case for higher, towards 1.1000, 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 1.88% while the 10yr should open around 2.40%.

AU swap yields 1-3 month: The 1.90% yield support area for the 2yr has been broken by the RBA surprise. If the RBA cuts to 1.5% as we expect, then the 2yr should eventually find a base around 1.7%.  

NZ swap yields 1 day: Should open higher given the net movements in global yields overnight, the 2yr up 1bp to 2.32%, and the 10yr up 3bp to 2.86%.

NZ swap yields 1-3 month: Slightly lower. Markets are skeptical that the RBNZ will cut at the next meeting in August, after the June MPS gave a more upbeat assessment of the domestic and global economies, although there is still one more cut projected and we expect that to be delivered in August. If the OCR does fall to a 2.0% low, the 2yr should bottom at around 2.10% (a 2.0% OCR plus a 10bp bank bill premium)."