Societe Generale Research flags a scope for further correction in AUD/NZD.

"Rate differentials have been rising in favour of the AUD relative to the NZD since April 2023, when NZD 2-year rates were 166bp higher than AUD ones, and AUD/NZD was at 1.06. The rate differential peaked when AUD rates reached 160bp over NZD ones, at the end of March. It’s 30bp off the highs now and the RBNZ’s ‘hawkish hold’ at today’s monetary policy meeting, combined with indications of a softening trend in Australian data that have seen expectations of further rate hikes fall away, beg the question of whether the divergence in RBA/RBNZ policy is now over and could reverse somewhat," SocGen notes.

"There are, of course, plenty of uncertainties still ahead, but the sheer extent of the AUD/NZD move gives it potential for a retracement. The last 12 months have delivered almost 17% in returns for long AUD/NZD and there’s clearly room for a correction if the relative outlook for monetary policy is changing," SocGen adds.