MUFG Research discusses the scope for further correction in AUD/NZD.

For approaching a year now, the fundamental backdrop for AUD/NZD clearly favoured the upside. From the closing level at the end of June last year, AUD/NZD advanced by 13.75% to the closing high on Tuesday – a very sizeable move in a little short of eleven months. The closing high on Tuesday was the highest close since April 2013," MUFG notes.

"Since June last year, the AU-NZ 2-year swap spread has surged from 25bps to a high of 160bps in April...The RBNZ meeting yesterday potentially marked a turn in that spread, which is likely to see some of that near 14% gain in AUD/NZD reverse. The RBNZ made clear that a hike was coming and the split 3-3 vote that kept the policy rate unchanged at 2.25% (Governor Breman’s vote to hold swung the decision) was accompanied with a communication of hikes to come. We see a hike at the next meeting in July, which is not yet fully priced at 20bps...If the recent move lower in AUD/NZD reflects a turning point in rate spreads, the historical narrative would suggest that this is the beginning of a broader corrective phase rather than a short-term positioning adjustment," MUFG adds.