MUFG Research sees a scope for further AUD/NZD upside over the coming months.
"Prior to today, the RBA had been assumed by the financial markets to be one central bank possibly approaching a level of policy rate where a pause would follow. The OIS market barely had 15bps priced for the meeting on 7th February and only about one further 25bp hike after that. But the Q4 inflation data this morning was much stronger than expected and the OIS curve has shifted to imply more work to be done. The headline annual CPI in Q4 hit 7.8%, the highest since 1990 and broadly in line with the 3 25th January 2023 RBA estimate of 8.0%," MUFG notes.
"We’ve seen a notable tightening of swap spreads with New Zealand and AUD/NZD is the big mover in FX. We see the potential for more in that. If the RBA is at risk of having to hike more than what is currently priced, we believe it is the opposite for the RBNZ where market pricing looks excessive given the weaker incoming economic data," MUFG adds.