Bank of America Global Research flags a scope for a sizeable reversal in AUD/NZD on widening tax differentials between Australia and New Zealand.

"We have been bullish AUD/NZD for most of the past 3 years, but we are becoming more cautious and note the potential downside if widening tax differentials lead to a meaningful shift in trans-Tasman migration patterns...," BofA notes.

"Over the longer run, we think the migration channel is becoming more important and may at least partly offset other drivers. New Zealand's tax system stands out globally for its absence of a broad-based capital gains tax, meaning most asset appreciation is not taxed, aside from targeted rules, such as the bright-line test for property or cases where assets are acquired with intent to resell. 

In contrast, Australia taxes capital gains as part of income and is now moving towards tighter treatment, including a minimum tax on gains and reduced concessions. The net result is a growing wedge between after-tax returns on capital across the Tasman," BofA adds.