Shane Oliver sees Aussie Kiwi heading to 1.25

After today’s benign CPI data and a measured Glenn Stevens, we look ahead to tomorrow’s rate decision from the RBNZ and ask AMP Capital's Head of Investment Strategy and Chief Economist, Dr Shane Oliver his view on relative rates and the AUD/NZD. Dr Oliver sees the interest rate differential continuing to narrow, “With the RBNZ now cutting rates, the rate differential between NZ and Australia is now narrowing and set to narrow further”. When questioned on the currency pair Oliver said, “With the interest rate differential in favour of NZ set to narrow (even if the RBA does cut rates once more), the AUD/NZD rate is set to head higher. It’s currently approaching some resistance around the 1.15 level but once this breaks a run up to 1.25 is likely during the course of the next year or two.” This rate narrowing view was echoed by Westpac New Zealand’s Senior Market Strategist, Imre Speizer. Speizer see the RBNZ aggressively easing into 2% by December with the RBA probably on hold until the end of the year.