This pair continues to see a major divergence between the two central banks, and the pricing has reflected this for some time now.
AUD/NZD
The Australian dollar initially did try to rally a bit during the trading session on Wednesday but has given back some of the gains as maybe a little bit of exhaustion is starting to settle into the market.
That does make sense. We've gone straight up in the air for a while. But when I look at this pair, I am looking for buying opportunities. The most obvious one for me is the 1.23 level. That's an area that previously had been significant resistance.
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The interest rate differential still favors the Australian dollar
The interest rate differential still favors the Australian dollar pretty significantly over the New Zealand dollar, as well as the directionality of the Reserve Bank of Australia being somewhat hawkish, while the RBNZ looks maybe neutral, possibly even slightly dovish. As long as that's the case, then it does make sense that the Australian dollar continues to outperform.
Furthermore, Australia has a lot of minerals and metals that are needed around the world, and there is still significant demand for such things as copper. So, all things being equal, this is a market that I think continues to find plenty of buyers. It's just a little exhausted.
The 1.25 level being an area that we pulled back from does make a certain amount of sense. That's a large, round, psychologically significant figure and would be a big headline there in the region. But really, at this point, I don't see any reason to short this market. I think Australia still is probably going to continue to outperform other currencies, and the New Zealand dollar, on the other hand, just doesn't have a lot going for it at the moment.
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