AUD/NZD: Underperformance bias with RBA on hold – TD Securities

TD Securities' Macro Research maintains a negative stance on the Australian Dollar relative to the New Zealand Dollar following the Reserve Bank of Australia’s September decision. With the cash rate at 4.60% and no further hikes expected this year, they see AUD underperformance persisting.

AUD seen lagging NZD performance

"At the same time, the Board acknowledged that consumption, housing, and labour conditions were easing broadly as expected. The takeaway message for us was while capacity pressures remain, the Board did not emphasize domestic pressures to be overheating."

"As such, the longer the RBA leaves the decision to hike, the more likely the Bank will be more comfortable keeping the cash rate on hold against a likely weakening in domestic activity."

"ANZ's 2y consumer inflation expectations were updated today, revealing that expectations peaked 3 weeks ago. Also, household spending data for August showed broad-based declines across 6 of 9 categories. Even with the 2.3% m/m gain on spending for transport, headline spending was flat m/m. Excluding transport, household spending was -0.4% m/m."

"Our bias remains for front end x-mkt outperformance and for AUD underperformance, particularly vs the NZD."